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ECB sees economy to recover at start of 2010
By Simon Kennedy |
January 5, 2009, Monday
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Print Edition
Print Edition
EUROPEAN Central Bank Vice President Lucas Papademos said an economic recovery may not begin until 2010 and that policy makers have the scope to cut interest rates if inflation slows further.
''The economic outlook is unusually uncertain,'' Papademos said in an interview with Germany's WirtschaftsWoche magazine published on Saturday. ''It is quite possible that the recovery will not start until the beginning of 2010.''
Having reduced their key interest rate by 175 basis points since early October to 2.5 percent, ECB policy makers enter the new year under pressure to cut more deeply amid Europe's first recession in 15 years, Bloomberg News said.
Retail sales fell for a seventh month in December, manufacturing shrank at a record pace and lending to the private sector stagnated, reports showed last week.
The economy may be even weaker in 2009 than the ECB's prediction of last month for a contraction of about 0.5 percent, Papademos said.
The Frankfurt-based central bank will ''act appropriately'' and has room to do so if the slowdown threatens price stability, which the ECB defines as inflation just below 2 percent in the medium term, he said.
''If, in our assessment, the risks to price stability change further in the coming months, monetary policy could be eased further and we will act appropriately,'' Papademos said.
Gradual recovery
The ECB's current view is that the 16-nation economy will remain weak and contract for two to three more quarters with a ''gradual recovery'' in the second half of the year at the earliest, he said. While it is premature for the bank to revise its projections it ''cannot rule out that economic activity in 2009 may turn out to be weaker than suggested,'' he said.
Although deflation, a sustained period of falling prices, isn't likely in the euro area, inflation may ''fall considerably'' in the middle of 2009 before accelerating toward levels consistent with price stability by the end of the year, Papademos said.
The inflation rate fell to 1.8 percent last month, beneath the ECB's target for the first time since July 2007, according to the median of 20 forecasts given by economists before a report scheduled for release sometime this week.
The fall in the price of oil from its peak of US$147 a barrel last July as well as lower interest rates and taxes should support expansion, Papademos said.
Economists at Bank of America Corp are among those anticipating the economy will be weaker than the ECB projects this year with a forecast for a 2.5 percent fall. They expect the ECB to cut its benchmark to 1.5 percent this quarter even as officials such as President Jean-Claude Trichet signal a reluctance to pursue aggressive rate cuts.
''The economic outlook is unusually uncertain,'' Papademos said in an interview with Germany's WirtschaftsWoche magazine published on Saturday. ''It is quite possible that the recovery will not start until the beginning of 2010.''
Having reduced their key interest rate by 175 basis points since early October to 2.5 percent, ECB policy makers enter the new year under pressure to cut more deeply amid Europe's first recession in 15 years, Bloomberg News said.
Retail sales fell for a seventh month in December, manufacturing shrank at a record pace and lending to the private sector stagnated, reports showed last week.
The economy may be even weaker in 2009 than the ECB's prediction of last month for a contraction of about 0.5 percent, Papademos said.
The Frankfurt-based central bank will ''act appropriately'' and has room to do so if the slowdown threatens price stability, which the ECB defines as inflation just below 2 percent in the medium term, he said.
''If, in our assessment, the risks to price stability change further in the coming months, monetary policy could be eased further and we will act appropriately,'' Papademos said.
Gradual recovery
The ECB's current view is that the 16-nation economy will remain weak and contract for two to three more quarters with a ''gradual recovery'' in the second half of the year at the earliest, he said. While it is premature for the bank to revise its projections it ''cannot rule out that economic activity in 2009 may turn out to be weaker than suggested,'' he said.
Although deflation, a sustained period of falling prices, isn't likely in the euro area, inflation may ''fall considerably'' in the middle of 2009 before accelerating toward levels consistent with price stability by the end of the year, Papademos said.
The inflation rate fell to 1.8 percent last month, beneath the ECB's target for the first time since July 2007, according to the median of 20 forecasts given by economists before a report scheduled for release sometime this week.
The fall in the price of oil from its peak of US$147 a barrel last July as well as lower interest rates and taxes should support expansion, Papademos said.
Economists at Bank of America Corp are among those anticipating the economy will be weaker than the ECB projects this year with a forecast for a 2.5 percent fall. They expect the ECB to cut its benchmark to 1.5 percent this quarter even as officials such as President Jean-Claude Trichet signal a reluctance to pursue aggressive rate cuts.
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