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Weak euro zone jobs picture overshadows bright spots

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Business confidence and economic sentiment in the euro zone saw a sharp improvement in August against a backdrop of falling inflation. But unemployment remained at a record high across the 17-nation bloc, putting a dampener on expectations for the region's economic recovery.

A survey by the European Commission (EC) showed that confidence in the euro zone's business climate rose for the fourth consecutive month in August, while the measure of economic sentiment improved to 95.2 in August from 92.5 in July, beating estimates in a Reuters poll.

On a less positive note, however, the euro zone's unemployment rate was unchanged in July from the previous month, at 12.1 percent.

Economists said that while the data pointed to a modest recovery, unemployment figures confirmed that this was not yet boosting the labor market.

"The labor market is not yet staging a meaningful recovery," Jennifer McKeown, A senior European economist at Capital Economics said, adding that "the EC measure of employment intentions suggests that job cuts will continue for the time being."

Although the number of jobless fell slightly by 15,000 to 19.23 million, the rate is still a record high for the euro zone and comes as youth unemployment rose to 24 percent from 23.9 percent in June, EU statistics agency Eurostat showed.

One economist said the data showed that the single currency area badly needed some "extra stimulus."

"It must be said that there is some very gradual recovery that's unfolding and you can see that in the fact that the actual level of unemployment has fallen in this latest reading," Julian Callow, chief international economist at Barclays told CNBC's "Worldwide Exchange."

"But at the same time we have a very high rate of unemployment there and this is catastrophically high in some parts of the euro area...People are losing their skills and becoming the very long-term unemployed."

(Read more: The secret recipe of German economic success)

There were bright spots for the region's consumers however. Lower energy prices helped the consumer price inflation (CPI) rate to decline to 1.3 percent year-on-year in August, from 1.6 percent in July, Eurostat estimates indicated.

Capital Economics' McKeown said the data would compel the European Central Bank to keep a close watch on the economy. "All in all, while a recovery seems to be underway, there is every reason for the central bank to remain in strongly accommodative mode for the foreseeable future."

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