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Eurozone Has Mildly Positive Econ. News03/02 06:16

   LONDON (AP) -- The 19-country eurozone got a double dose of mildly positive 
economic news Monday that will likely be met with relief by the European 
Central Bank's policymakers as they prepare to hold their latest meeting on the 
small Mediterranean island of Cyprus.

   Official figures from Eurostat showed that the fall in consumer prices eased 
notably in February, a development that may temper some of the more alarming 
predictions that the region is sliding into a protracted period of deflation. 
Separately, the statistics agency found unemployment in the region fell in 
January to 11.2 percent, its lowest level in nearly three years, amid signs 
that the recovery is gaining some momentum.

   Making sure falling prices don't become entrenched --- causing long-term 
economic stagnation --- is the primary economic goal of the European Central 
Bank, which holds its next policy meeting on Thursday. It will gather in 
Nicosia, the Cypriot capital, one of a two meetings it holds every year away 
from its Frankfurt headquarters to stress its role as the monetary authority 
for all the states using the euro.

   Following an announcement in January, the ECB is due to start a massive 
bond-buying program this month as part of a drive to get inflation back toward 
its target of just below 2 percent. More details on the mechanics of the 
program are expected Thursday.

   The bank's president, Mario Draghi, and his peers on the governing council 
may find some comfort in Monday's news that consumer prices in the eurozone 
were 0.3 percent lower in February compared with a year earlier, half the rate 
of decline recorded in January. Prices have been dropping on an annual basis 
for three months, but February's rate was slightly less than 0.4 percent drop 
markets were anticipating.

   Once again, lower energy prices were largely responsible for the decline, 
down a whopping 7.9 percent on the previous year. Stripping out volatile items 
such as energy, food, alcohol and tobacco, the so-called core inflation rate 
held up at 0.6 percent, with the services sector showing an uptick in prices.

   Lower prices may sound good in principle, especially if they are due to a 
fall in oil prices --- the euros saved filling up a car can be used elsewhere, 
promoting economic activity.

   The problem arises when the fall in prices endures, a situation that is 
often referred to as a deflationary spiral. That can choke the life out of an 
economy if consumers put off purchases in the hope of future bargains. It can 
also erode companies' profits and make governments' debts appear greater. 
Deflation can also prove difficult to reverse, as evidenced by the case of 
Japan.

   That's why the ECB has embarked on its new course. Proponents of the 
stimulus, which is set to be worth around a trillion euros ($1.12 trillion), 
say the policy can help shore up the recovery in the eurozone and support 
prices by reducing the borrowing costs for businesses, households and 
governments. The associated fall in the currency --- the euro is trading at 
around decade-lows against the dollar --- could also help boost growth by 
making exports cheaper and push prices up by making imports more expensive.

   In a separate encouraging development, unemployment across the eurozone fell 
to 11.2 percent in January, its lowest level since April 2012. Though the rate 
masks huge divergences across the region, it's another indicator showing that 
the eurozone's economic recovery is gaining some momentum. Compared with 
December 2014, the number out of work fell by 140,000.

   It's still not much to celebrate, though, not least because many countries 
in the region, notably Greece, continue to grapple with high debt.

   The most Bill Adams, senior international economist for PNC Financial 
Services Group, could say about Monday's figures was that they were just "less 
awful."


(KA)


 
 
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