FRANKFURT, March 2, 2008 (AFP) – The European Central Bank will make a cut of sorts this week — but with eurozone inflation stubbornly high the cut will be to its growth forecasts, not interest rates.
“The ECB council will cut on Thursday its forecasts for growth in the euro zone, but not its main interest rate,” WestLB economist Holger Sandte said in predictions widely shared by other experts.
The US Federal Reserve has slashed interest rates in recent weeks in an effort to stave of a recession, and increasing signs of an economic slowdown in the euro zone are adding to pressure on the ECB to follow suit.
Further pessimism was generated on Friday with a sharper-than-feared decline in the European Commission’s eurozone economic sentiment indicator to its lowest level in two years.
“What is a worry is the sharp collapse in eurozone economic confidence over the last year. This is consistent with eurozone growth dropping well below 2.0 pct this year, possibly to around 1.5 pct,” Bear Stearns economist David Brown said.
“The ECB is now under huge moral pressure to cut rates especially with the euro on a surge towards 1.55 dollars.”
Other confidence indicators have also weaken