Frankfurt, April 10 (Bloomberg) -- The European Central Bank will probably cutinterest rates for the first time in two years this week, as slowing economicgrowth increases the likelihood inflation in the 12-nation euro area will recede. Twenty-three of 33 economists and investors surveyed by Bloomberg NewsMonday expect the ECB's 18-member Governing Council to reduce its keyrefinancing rate by as much as 50 basis points Wednesday from the current4.75 percent. An announcement is due at 1:45 p.m. local time that day. With stock prices falling and demand for European exports slowing, companiesfrom Siemens AG to Italy's Pirelli SpA say a rate cut is now needed to boostinvestment and jobs. The ECB is the only major central bank that has stayed itshand on rates this year, arguing it needs more evidence inflation is waning. ``The ECB has already left things a little too late,'' said Julian Callow, economistat Credit Suisse First Boston in London. ``If it doesn't cut this week, it will havea lot of explaining to do.'' Callow expects a 25-basis-point reductionWednesday. Evidence is mounting that the slowdown in global growth is taking its toll onEurope. German, French and Italian business confidence is at its lowest inabout a year and a half. German unemployment rose for the third month in a rowin March, while factory orders fell for the second straight month. ``There's certainly room for a rate cut'' on Wednesday, said Anton Boerner, thepresident of Germany's BGA association of wholesalers and exporters, whichrepresents 135,000 companies with 1.4 million workers. Lower borrowing costs``would improve market sentiment.''
Bad News
German truckmaker MAN AG, electronic circuit-board maker AustriaTechnologie & Systemtechnik AG as well as Germany's No. 1 fashioncompany, Hugo Boss AG, have all said they see lower earnings ahead as aslowing world economy damps demand. MAN last week forecast as much as 10 percent lower pretax profit this year.German broker Baader Wertpapierhandelsbank AG halved its 2000 dividendafter earnings plunged. The German government expects exports in Europe's biggest economy to grow8.5 percent this year, less than last year's 12.9 percent. Germany accounts fora third of the euro area economy. The U.S. is the largest investor in the euro zone. The world's largest economyabsorbs about 13 percent of the region's foreign sales. The euro-area's economyis about three-quarters the size of that of the U.S. Economic growth in the U.S. will probably fall to 1 percent this year, accordingto Deutsche Bank AG, after 5 percent last year. Growth in the euro region islikely to slow to 2.5 percent from 3.5 percent, the bank said.
Benefits of Cut
``The ECB has to cut rates due to the deteriorating economic environment,'' saidMichael Schiller, economist at DG Bank AG in Frankfurt. ``Growth expectationsmight improve if people see the ECB doesn't just care about inflation.'' Lower borrowing costs would reduce the price of a mortgage or car loan for themore than 300 million consumers in the region that stretches from Lisbon toHelsinki. It would make it cheaper for companies to borrow money to buildfactories, buy equipment and hire workers. A cut would also spur stock markets across Europe, which have tumbled onconcerns about slowing growth. The Dow Jones Euro Stoxx 50 Index has fallenalmost 12 percent this year. Shares account for 5 percent of household wealthin the euro area, according to economists at Exane, a Paris-based brokerage. There is an ``environment of increased uncertainty about the global economy,''the ECB said in a statement on March 30. Several Governing Council members,who set the price of money in the euro region, have since cited from thestatement. The ECB said it is assessing ``whether and to which extent upward risks toprice stability will continue to decline.''
Inflation
Euro-area inflation rose to 2.6 percent in February from 2.4 percent the previousmonth. The euro region's inflation rate has exceeded the ECB's 2 percent limitfor the past nine months. The bank's main goal is to keep inflation below thatlevel. Euro-region consumer prices for March, the next in line to be released for thewhole region, are due only on April 19, eight days after Wednesday's ECBmeeting and a week before the bank's council assembles again on April 26. The ECB's statement prompted some investors to scale back their expectationsfor a swift reduction in rates. The yield on the April interest rate futures contracthad fallen to 4.43 percent two days before the ECB released the statement.Since then, it has rebounded to 4.51 percent. The last time the ECB cut interest rates was April 8, 1999, to spur flaggingEuropean growth at a time when the euro-area's inflation rate stood at a recordlow of 0.8 percent in February of that year. The bank raised borrowing costsseven times between then and Oct. 5, 2000. The following is a table with the results of the latest Bloomberg News ECBpolicy survey. Analysts were asked when the ECB would cut rates next. All 33responses were sent on Monday. April 11 April 26 May 10 -25 19 5 1 -50 4 2 1 One survey participant expects no changes in rates this year.