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Eurozone inflation falls sharply amid slowdown fears

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Brussels (AFP)

Eurozone inflation dropped sharply in May, data showed on Tuesday, raising the spectre of a global economic slowdown sparked by a Washington-led trade war.

The inflation data landed amid financial market turbulence with worries increasing that the world economy faces trouble ahead, with Brexit dangers also looming in Europe.

The EU's Eurostat agency said inflation last month sank to 1.2 percent, significantly down from the 1.7 percent logged in April.

Analysts surveyed by data company Factset had predicted a more modest drop to 1.4 percent.

The fall puts consumer prices in the 19-nation single currency bloc even further from the European Central Bank's inflation goal of just below 2.0 percent.

Central bankers will especially be worried by core inflation, which strips out volatile prices such as energy, which fell to 0.8 percent in May, from 1.3 percent in April.

The drop in consumer prices landed a day after data showed that factory output in the eurozone fell close to a six-year low in May.

This has compounded fears that international trade tremors caused by the protectionist offensive by US President Donald Trump against China and other partners is destabilising the world economy.

Economists say investor confidence is shaken by US-led trade war, putting pressure on the ECB governors to do more to boost the economy when they meet on Thursday.

"This will no doubt make some ECB board members a little hot under the collar, as pressure to take action is mounting," said Bert Colijn, Senior Economist at ING Bank.

"At the April meeting, it was already mentioned that price pressures remain uncomfortably low, which has certainly not improved since then. Expect a dovish tone from the ECB on Thursday," he said.

However the ECB's firepower is limited after years of very low rates and other unprecedented steps to boost lending and growth in Europe.

- Unemployment hits 10-year-low -

There was a silver lining in the Tuesday's data, with eurozone unemployment down to 7.6 percent in April.

This marked the lowest rate recorded in the eurozone since August 2008.

This was lower than surveys of analysts by Factset, who were expecting 7.7 percent, the same as the previous month.

Unemployment in the eurozone has fallen steadily since September 2016, when it fell below the symbolic threshold of 10.0 percent.

It is now close to the average rate it had before the 2007-2008 financial crisis, which was 7.5 percent.

Among the 19 countries that have adopted the single currency, the lowest unemployment rate was recorded in Germany at 3.2 percent and the Netherlands at 3.3 percent.

The highest unemployment rates were recorded in Greece at 18.5 percent in February 2019, the latest data available, and Spain at 13.8 percent.

Across the 28 countries of the European Union, the unemployment rate stood at 6.4 percent in April.

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