Frankfurt, March 3 (Bloomberg) -- European Central Bank policy makers may struggle to find consensus on cutting interest rates this week as council members differ on prospects for an economic recovery this year, economists say. ECB President Wim Duisenberg on Feb. 22 said he no longer expects a rebound this year, leading investors to bet on a rate cut at the council's next meeting. Three days later, Bank of France Governor Jean-Claude Trichet forecast a ``significant'' recovery by the end of this year. ``Duisenberg very clearly indicated that he wanted a rate cut,'' said Holger Schmieding, European economist at Bank of America in London and former adviser to the International Monetary Fund. ``The problem is that comments from other council members since then were more ambiguous.'' The euro-region economy, which encompasses 300 million people from Lisbon to Helsinki, may contract this quarter after growing at its slowest pace in almost a decade last year, the European Union has said. Reports last week showed Germany's economy stagnated in the fourth quarter and European consumer confidence sank to its lowest level in more than six years. Duisenberg's growth concerns are shared by other ECB council members, including Chief Economist Otmar Issing, fellow executive board member Tommaso Padoa-Schioppa and Germany's Ernst Welteke. With all saying inflation is tame, investors and economists expect them to sway the council's decision.
`Close Call'
Nineteen of the 25 economists surveyed by Bloomberg News say the ECB will lower its benchmark refinancing rate by at least a quarter point from 2.75 percent, a three-year low, on Thursday. Fourteen say the cut will be as much as 50 basis points. Futures trading also suggests lower borrowing costs. The rate on a three-month euro deposit maturing in March fell 1 basis point to 2.42 percent at 9:02 a.m. in Frankfurt. Ten days ago, it was 2.59 percent. A basis point is 0.01 percentage point. Trichet isn't the only council member who may take some convincing. Bank of Italy Governor Antonio Fazio, who said he often sides with Duisenberg, said on Feb. 22 the time may not be right for a rate cut given ``current uncertainties'' surrounding the threat of war in Iraq.
Austria's Klaus Liebscher said in an interview two weeks ago a reduction isn't necessary to revive economic growth. Business confidence improved in Germany, Italy and Belgium last month, a sign the euro region may escape recession. ``People like Trichet are suggesting it's still an open question,'' said Claudia Henke, an economist at Dresdner Bank in Frankfurt. ``The decision will be a close call.''
Duisenberg Abandons Forecast
The ECB says its 18-member council makes decisions by consensus. The last time the ECB signaled a split among policy makers was on Nov. 7 when Duisenberg said the council ``discussed extensively the arguments for and against a cut.'' The ECB pared its benchmark rate by a half point the following month, the fifth reduction since the start of 2001. The U.S. Federal Reserve cut rates 12 times in that period to a 41- year low of 1.25 percent. At the time of the last rate meeting on Feb. 6, Duisenberg said a rate reduction probably wouldn't do much good as companies and consumers are postponing decisions amid concern that the U.S. will lead an attack against Iraq. Duisenberg has since retreated from that position. On Feb. 17, he said the ECB would trim its growth forecast. Five days later, he added ``the perspective of an economic recovery this year is no longer supported by the most up-to-date information.''
Growth Not Fast Enough
Europe's $7 trillion economy is stalling amid rising unemployment, dwindling business investment and sluggish export demand. The euro's 24 percent gain against the dollar in the past year is also hurting exports at companies including Schering AG, a maker of birth-control pills, and Alcatel SA of France. ``The stronger euro and weak demand speak in favor of a rate cut,'' said Volker Hofmann, an economist at the BDB Association of German Banks, whose members include Deutsche Bank AG and Commerzbank AG. Every 10 percent rise in the euro trims the region's gross domestic product by half a percent, according to CDC-Ixis chief economist Patrick Artus, who advises the French government on economic issues including the ECB.
``Growth isn't as rapid as we would like,'' Italy's Padoa- Schioppa said Thursday. The IMF cut its 2003 growth outlook to 1.3 percent for the dozen nations using the euro, the Italian Treasury said two weeks ago. Forecasts for this year ``suggest that now the prospects for 2003 are not as good as they appeared a few months ago,'' said Nikos Garganas, who is head of the Greek central bank, on Friday. //www.quote.bloomberg.com