Although the European Central Bank kept interest rates on hold at 0.75 percent on Thursday, the bank debated cutting rates this week and considered a cut for next year if the euro-zone economy does not pick up.
“If the situation does not improve, and there is relatively a small chance there will be a significant improvement, it is possible to expect a move in interest rates next year,” said Jozef Makuch, one of the ECB’s Governing Council members, to Reuters.
The ECB’s interest rate decision came one day after the bank lowered its forecasts for next year’s growth. European Central Bank President Mario Draghi said that the euro zone’s economy is expected to shrink by 0.5 percent this year, a greater contraction than the 0.4 percent decrease the bank predicted in September. In part, the bank based its weaker growth prospects on the lowered expectations given by the bloc’s core countries: Germany, France, and the Netherlands.
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Germany’s Bundesbank has predicted that the economy will grow by 0.4 percent, down from a June forecast of 1.6 percent, and Austria’s central bank decreased its growth forecast from 1.7 percent to 0.5 percent.
Although Germany is an important growth driver for the euro zone, which is in its second recession since 2009, it could enter a recession of its own. As Reuters reported, “the country’s resilience to the crisis is wearing thin and the central bank’s new projections reflect this.” In particular, German industry has suffered, with industrial output and exports falling in recent months. According to Economic Ministry data seen by Reuters on Friday, industrial production fell more than expected in October, decreasing by 2.6 percent.
However, the German government remains optimistic.
“We have no doubt that we are still growing,” Chancellor Angela Merkel’s spokesman Steffen Seibert told reporters. “There are many indicators and they don’t all point to a recession.”