US recovery concerns cloud ECB decision
By Pan Pylas |
September 2, 2010, Thursday
|
Print Edition
Print Edition
INDICATORS are pointing up at the European Central Bank, which may be about to raise its 2010 economic projections. But that brightening picture is being darkened by fears about the recovery in the United States.
That is why ECB head Jean-Claude Trichet is expected to signal that it's not time to discuss interest rate hikes when he fronts his monthly press conference following the bank's monthly interest rate decision today.
The worry is that the loss of momentum in the US, the world's largest economy, will have a knock-on impact in the 16 countries that use the euro, where a bigger-than-anticipated economic rebound has been largely fed by a recovery in global demand.
If US demand for German cars wanes, for example, growth in Europe could falter too.
"Trichet may again note still firm short-term macro dynamics in the eurozone, but at the same time acknowledge risks from the slowdown in the US and Asia and that the cyclical upswing will likely remain fragile and uneven," said Silvia Ardagna, European economist at Bank of America Merrill Lynch.
In August, Trichet sounded cautious even though the impending sense of doom that had dominated much of this year had largely evaporated, following a 110 billion euro (US$140 billion) bailout of Greece from the country's 15 partners in the eurozone and the International Monetary Fund, and a near US$1 trillion rescue package for other potentially shaky countries.
Though he said economic growth in the eurozone in both the second and third quarters of this year would be higher than previously anticipated, Trichet warned of the impact from weakness elsewhere - since the last meeting, Japan's economic outlook has darkened dramatically as the steep rise in the value of the yen pressures the country's exporters at a time when the economy is barely growing.
In the longer term, however, the ECB may have to do more as the eurozone's recovery could be hurt by any sharp slowdown across the Atlantic.
That is why ECB head Jean-Claude Trichet is expected to signal that it's not time to discuss interest rate hikes when he fronts his monthly press conference following the bank's monthly interest rate decision today.
The worry is that the loss of momentum in the US, the world's largest economy, will have a knock-on impact in the 16 countries that use the euro, where a bigger-than-anticipated economic rebound has been largely fed by a recovery in global demand.
If US demand for German cars wanes, for example, growth in Europe could falter too.
"Trichet may again note still firm short-term macro dynamics in the eurozone, but at the same time acknowledge risks from the slowdown in the US and Asia and that the cyclical upswing will likely remain fragile and uneven," said Silvia Ardagna, European economist at Bank of America Merrill Lynch.
In August, Trichet sounded cautious even though the impending sense of doom that had dominated much of this year had largely evaporated, following a 110 billion euro (US$140 billion) bailout of Greece from the country's 15 partners in the eurozone and the International Monetary Fund, and a near US$1 trillion rescue package for other potentially shaky countries.
Though he said economic growth in the eurozone in both the second and third quarters of this year would be higher than previously anticipated, Trichet warned of the impact from weakness elsewhere - since the last meeting, Japan's economic outlook has darkened dramatically as the steep rise in the value of the yen pressures the country's exporters at a time when the economy is barely growing.
In the longer term, however, the ECB may have to do more as the eurozone's recovery could be hurt by any sharp slowdown across the Atlantic.
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