Eurozone recovery accelerates but jobs elusive

By Juergen Baetz

Associated Press

Published: Friday, Feb. 14 2014 2:41 p.m. MST

MEAGER OUTLOOK

The recovery is expected to remain modest this year.

The European Commission, the EU's executive arm, predicts growth of 1.1 percent for the eurozone and 1.4 percent for the broader 28-country EU, which includes nations like Britain and Poland that don't use the euro.

Most analysts forecast growth of around 1 percent for the eurozone: Probably not enough to lift many out of unemployment, but it would still be the bloc's best performance since 2011.

That would still pale in comparison to the U.S. economy, which some expect to grow 3 percent this year, its strongest performance since 2005.

DEFLATION THREAT LURKS

The weak recovery has created one big headache, a steady slide in the inflation rate.

Policymakers are worried that if prices start falling outright, consumers and businesses might put off spending, killing off growth. Once it starts, deflation can be terribly difficult to get rid of — Japan struggled with it for two decades, during which its economy hardly grew at all.

Since unemployment remains high, domestic demand in many countries is unlikely to pick up soon, which encourages retailers to lower prices further to boost sales.

Inflation across the eurozone is 0.7 percent, well below the European Central Bank's target of just under 2 percent. So the central bank may act again in coming months.

Some analysts think it might cut its benchmark interest rate from its record low of 0.25 percent, offer more cheap loans to banks or pump money into the economy.

Capital Economist analyst Jonathan Loynes said the fourth-quarter growth uptick isn't enough to "to head off the dangers of deflation."

Follow Juergen Baetz on Twitter at http://www.twitter.com/jbaetz

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