(c) 2013, Bloomberg News.

(c) 2013, Bloomberg News.

FRANKFURT, Germany Euro-area unemployment unexpectedly declined in October in a sign that a nascent recovery is starting to show its effect on the labor market.

The jobless rate fell to 12.1 percent in the 17-nation economy from a record 12.2 percent in the prior month, the European Union's statistics office in Luxembourg said Friday. Inflation quickened to 0.9 percent this month, a separate report showed. Economists had forecast the jobless rate to remain at 12.2 percent, the highest since the debut of the euro currency, according to the median of 34 estimates in a Bloomberg survey.

The decline is a first indication that the euro area's unemployed are starting to benefit from the end of the currency bloc's longest-ever recession. At the same time, the jobless rate remains close to its all-time high and economic growth in the euro area slowed to 0.1 percent in the third quarter after a 0.3 percent expansion in the three months through June.

"The economy is still too weak to bring fundamental change to the unemployment rate," said Annamaria Grimaldi, an economist at Intesa Sanpaolo in Milan. "Growth needs to pick up and we need to see structural reforms in a number of countries to achieve significant improvement."

The jobless rate in Spain rose to 26.7 percent in October, even after the economy resumed growth in the third quarter. Spain's rating outlook was raised today by by Standard & Poor's, though the ratings firm said the economy faces "strong headwinds" including high unemployment.

Italy's unemployment rate held at 12.5 percent last month, today's report showed. In Germany, Europe's largest economy, the jobless rate remained steady at 5.2 percent.

European Central Bank President Mario Draghi has urged governments to implement "decisive structural reforms" to fight joblessness. Italian Prime Minister Enrico Letta said on Oct. 21 that "youth unemployment is the true nightmare" in his country.

The jobless rate for people under 25 increased to 24.4 percent in the euro area in October, with Italy's youth unemployment rising to 41.2 percent from 40.5 percent in the prior month. Spain recorded a youth jobless rate of 57.4 percent in the latest month, up from 56.8 percent in September.

In an indication that the recovery is gaining momentum, economic confidence in the euro area improved to a 27-month high this month, the European Commission said yesterday. Gains in sentiment in industry, services and retail outweighed weaker consumer confidence, according to the report.

Merck KgaA, the Darmstadt, Germany-based maker of the cancer drug Erbitux, this month raised its profit forecast for this year as cost reductions amid job cuts and the shutdown of facilities are taking effect faster than planned.

The jobless rate in the euro area will stay above 12 percent until the end of 2014, according to forecasts in Bloomberg's monthly survey of economists.

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