The eurozone economy may contract in the first quarter of 2003, the European Commission warned today, adding to the pressure on the European Central Bank (ECB) to lower interest rates. The Commission held its fourth quarter 2002 forecast at 0.2-0.5pc, noting a "sluggishness of consumption" in the retail sector. For the first quarter of 2003, however, the economy is expected to shrink by as much as 0.2pc. The Commission, whose range stretches from negative 0.2pc to growth of 0.2pc, said the new forecast does not change the overall outlook for a gradual recovery next year.
The ECB's governing council will probably cut interest rates tomorrow for the first time in a year, according to economists. The bank has indicated that it is concerned about growth in the eurozone and a number of its policymaker said that they expect inflation pressures to ease in the medium term. This has opened the way for a rate reduction, although the market is divided on how far the ECB will go. "I'm still hoping for 0.50pc - it certainly is merited given that the ECB have accepted that inflation is now on a downward trajectory," said Niall Dunne, economist at Ulster Bank Financial Markets. //www.fxcentre.com