The European Central Bank (ECB) was expected on Thursday to issue fresh forecasts about the Euro Zone economy, and hold off from new stimulus action after last month’s surprise interest rate cut to a historic low of 0.25 per cent.
According to Danske Bank, economists at the Frankfurt-based body were set to predict negative Euro Zone growth of 0.4 per cent in 2013, to be followed by an expansion of 1 per cent in 2014 and of 1.5 per cent in 2015.
The Danish lender also expected the ECB to forecast an inflation rate of 1 per cent next year, accelerating to 1.4 per cent in 2015 – still far from the ECB’s statutory target of keeping it “close to, but below” 2 per cent.
Such a weak outlook would justify more interventions to stimulate the economy, experts said. But they expected ECB President Mario Draghi to signal that the bank would move early next year, rather than in December.
“Draghi will make it clear that the ECB’s weapons are at the ready to take action further down the line,” Jana Meier, an analyst with HSBC Trinkaus said.
ING Bank Chief Economist Carsten Brzeski said he did not expect immediate moves because the ECB was still digesting November’s rate cut, which “proved controversial,” and because additional measures were still being studied.
While jobless numbers are improving and most national economies are emerging from recession, weak bank lending remains a key drag on the Euro Zone’s recovery, especially in southern nations such as Italy and Spain.
Offering banks more cheap loans, embarking on US-style quantitative easing, loosening reserve requirements, or introducing negative deposit rates are the main options to address the problem.