The Eurozone’s economy will contract this year according to a survey released by the European Central Bank. The revelation is a stark contrast to the Bank’s previous predictions that the region would begin to show signs of strengthening and created speculation over how the Bank will react.
The ECB’s latest Survey of Professional Forecasters asked 53 economists, academics and other professionals whether they believed the region would see growth or weaken. The results concluded with the Eurozone contracting by 0.4% over the year. The latest survey also pointed to inflation of 1.7% this year, down from 1.8% in the prior survey. The ECB targets inflation of close to, but below, 2%.
Despite the decline in the expectation of growth economists are predicting that the ECB will refrain from making further interest rate cuts until 2015 despite President Mario Draghi’s pledge last week to deliver another cut if needed.
“I don’t expect another ECB rate cut,” said Marco Valli, chief euro-area economist at UniCredit Global Research in Milan. “Inflation will move closer to 2% again and we will see moderate economic growth in the second half of this year.”
The negative data has caused the Euro to weaken against the majority of its peers. It remains close to the three-week high against the US Dollar as risk sentiment remains fairly positive following positive economic data release out of Asia and the UK.
“There’s a chance for the recovery to not materialize anytime soon and for euro-area growth to be flat next year,” said Nick Matthews, senior European economist at Nomura International Plc in London. “Rates could be lowered again and this may also include a negative deposit rate.”
Such a move will likely send the Euro down against its peers over investor concerns that such a move will impact banks profitability. Forcing banks to pay when parking cash at the central bank would be aimed at spurring them into lending rather than saving.
Current Euro (EUR) Exchange Rates
The Euro/US Dollar Exchange Rate is currently in the region of: 1.3169
The Euro/Pound Sterling Exchange Rate is currently in the region of: 0.8466
The Euro/Australian Dollar Exchange Rate is currently in the region of: 1.2863
The Euro/ New Zealand Dollar Exchange Rate is currently in the region of: 1.5581
The US Dollar/Euro Exchange Rate is currently in the region of: 0.7593
The Pound Sterling /Euro Exchange Rate is currently in the region of: 1.1811
The Australian Dollar/Euro Exchange Rate is currently in the region of: 0.7774
The New Zealand Dollar/Euro Exchange Rate is currently in the region of: 0.6418
(Correct as of 12:00pm GMT)
