Continental Europe's two biggest economies showed little sign of vibrancy in unemployment reports released on Thursday, with a marginal dip in Germany and no real change in France, where household confidence slid unexpectedly. Britain, which has enjoyed stronger expansion than the main eurozone countries for years, said first-quarter growth was lower than it first thought, cutting its quarterly rise to 0.4 from 0.5 percent initially.
Both pieces of news reinforced economists' convictions that there was a case for cuts in interest rates to shore up growth in Britain and the eurozone, though some said an upturn in inflation could let the ECB off the hook briefly.
The European Commission said the business climate improved for the first time this year in June, though only marginally.
Morale improved in the industrial and service sectors but consumer confidence remained low and the Commission said inflation rose to 2.1 percent from 1.9 in May.
"The ECB is not off the easing hook by a long stretch," said David Brown, chief European economist at Bear Stearns.
Germany has urged the ECB to cut rates and Standard & Poor's credit rating agency on Thursday added fuel to the fire, saying a cut was "overdue" and that the ECB could be held responsible for years of Japanese-style stagnation if it did not act.
"If the ECB does not cut rates, the risk is high that the Bank might replicate the serious mistakes made by the BoJ (Bank of Japan) 12 years ago, which resulted in the economy being caught in a liquidity trap," an S&P report said.
Germany's seasonally adjusted rate of unemployment fell to 11.7 percent in June from 11.8 percent, and the jobless total in adjusted terms fell 23,000 to 4.858 million, the Labour office said.
France's jobless rate remained at 10.2 percent for a third month running, the Labour Ministry announced in a report which coincided with news from the statistics office that household confidence slid slightly in June.
"At best we are seeing a stabilisation in the labour markets in both France and Germany," Audrey Childe-Freeman, an economist at CIBC World Markets in London, said. "We will see an improvement in Germany before we see it in France because Germany has undertaken several reforms," she said, referring to the Hartz IV reforms that cut benefits and force people to accept jobs more readily.
Economists said the German jobless dip was positive but not yet convincing, and some said the Social-Democrat government would logically hold the data up as proof that gain was now coming from the pain of labour market reforms. "The figures are certainly a good deal better than expected, but I don't think we should view them as a sign of a turnaround in the labour market yet; the economy is still too weak for that," said Carsten Klude at MM Warburg.
More worrying perhaps was a report by French statistics office INSEE which said its barometer of consumer confidence in the euro zone's second biggest economy fell to minus 30 in June, bucking economists' expectation that it would stay at minus 29.
"To have sustained consumption, there must be an improvement in the employment market and purchasing power. And the unemployment rate is still high at 10.2 percent, a five-year high," said Alexandre Bourgeois at Natexis Banques Populaires.
Eurozone gross domestic product is believed to have slowed in the second quarter of this year from a 0.5 percent rise in the first quarter, with Italy in the jaws of recession. But politicians and central bankers are counting on a rebound in the second part of 2005.
France's statistics office revised quarterly GDP growth in the first quarter of 2005 to 0.3 percent from a previous estimate of 0.2 percent. After the cut from initial British GDP estimates, economists said slower household spending in Britain was building up the case for a cut in British interest rates as early as August after a long run of rises that stopped some months ago.