ECB sees deflation "unlikely"

There is the obvious credibility issue with that...


Gerrit Wiesmann in Frankfurt

Published: March 27 2009 12:09 | Last updated: March 27 2009 12:09

Manufacturers in the eurozone saw the flow of new orders plunge by a
third in January from the same month 2008, a record drop that signals
the 16-member currency bloc is in even deeper recession than it was
late last year.

Marking the biggest decline since records began in 1996, industrial
orders booked in the first month of 2009 were 34.1 per cent below
levels seen 12 months before. The European statistics office Eurostat
said the month-on-month decline hit 3.4 per cent.

“Plunging industrial orders in January reinforces fears that eurozone
GDP will contract in the first quarter 2009 by even more than the 1.5
per cent quarter-on-quarter drop seen in the fourth quarter of 2008,”
said Howard Archer, an economist at HIS Global Insight.

Hammered by slowdowns in domestic and foreign demand for their
products, eurozone manufacturers will be looking to the European
Central Bank to continue cutting interest rates when monetary policy
makers meet on Thursday.

The ECB has already reduced its main rate to a record low of 1.5 per
cent and policymakers have made clear that they see “room for
manoeuvre” in the cost of lending.

Most economists think this means the bank will cut its main rate by 25
or 50 basis points on 2 April, with ever-more gloomy economic data
increasing the chances of a the larger move.

Pressure on monetary-policy makers could also rise as fears emerge of
deflation, the persistent fall of prices – even if the ECB sees this
as unlikely.