Official figures Monday showed the jobless rate declined to 7.5 percent from 7.6 percent in April, well below the peak of 12.1 percent in 2013 in the wake of a debt crisis that threatened to break up the euro.
Export-dependent manufacturing has suffered due to the trade conflict between the U.S. and China. But domestic demand has held up, and the economy is further supported by record low interest rates set by the European Central Bank. Weakening indicators about future growth and slack inflation have led the ECB to signal more stimulus may be coming.
Unemployment is what economists call a trailing indicator, meaning it follows developments in the economy by months or years. The lower unemployment rate shows the progress that Europe has made in recovering from the Great Recession and the debt crisis that threatened the euro's existence earlier this decade.
The ECB however must look ahead when doing monetary policy since its stimulus measures can take months to have an effect. In particular, stubbornly weak inflation of only 1.2 percent has led the ECB to say that unless there is improvement more stimulus would be needed. That could come in the form of bond purchases that pump newly printed money into the economy, or further interest rate cuts from current record lows. The bank has set a rate of negative 0.4 percent on deposits it takes from commercial banks, an extraordinary step. The negative rate is a penalty aimed at pushing banks to lend the money.
The ECB's inflation goal is just under 2 percent, a level considered best for the economy. It has been unable to achieve that goal despite years of stimulus efforts.