BLBG: ECB’s Trichet Says Euro-Region Economy Will Contract
By Gabi Thesing
Dec. 4 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said the euro region’s economy will shrink next year for the first time since 2003 after the bank delivered the biggest interest rate cut in its 10-year history.
“Global and euro-area demand are likely to be dampened for a protracted period of time,” Trichet said at a press conference in Brussels today. The ECB lowered its benchmark by three quarters of a percentage point to 2.5 percent.
The ECB’s decision came after the Bank of England today cut its key rate by one percentage point to 2 percent and Sweden’s central bank lowered borrowing costs by the most since 1992. The Federal Reserve’s benchmark rate now matches a five-decade low as central banks rush to respond to the global recession.
“The level of uncertainty remains exceptionally high,” Trichet said. The euro was little changed after his comments and traded at $1.2634 at 3:16 p.m. in Brussels.
Trichet said the euro region’s economy will shrink around 0.5 percent next year, the first time the ECB has ever predicted a contraction. In September, the bank forecast a 1.2 percent expansion next year. Inflation will slow to about 1.4 percent in 2009 from 3.3 percent this year.
Lower Pressure
“Overall, since our last meeting, evidence that inflation pressures are diminishing has increased,” Trichet said. “Inflation rates are expected to be in line with price stability over the relevant policy horizon.”
Until today, the ECB had restricted itself to two 50-point cuts since October, with Trichet stressing its role as an “anchor of stability.”
Manufacturing and service industries contracted at the fastest pace on record in November and economic confidence plunged to a 15-year low. With oil prices collapsing, the inflation rate fell the most in almost 20 years last month, to 2.1 percent from 3.2 percent in October.
The International Monetary Fund predicts the euro-region economy will contract 0.5 percent in 2009.
To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net
