Oct. 2 (Bloomberg) -- European Central Bank policy makers, setting borrowing costs for the final time under Wim Duisenberg's leadership, will probably leave interest rates unchanged today for a fourth month amid signs the economy is recovering. The ECB's 18-member rate-setting council, meeting in the Portuguese capital of Lisbon, will keep the benchmark refinancing rate at 2 percent, all 16 economists surveyed by Bloomberg News predicted. Duisenberg, 68, is due to be replaced by Bank of France Governor Jean-Claude Trichet on Nov. 1. The first expansion in European manufacturing in seven months, rising business confidence across the $8 trillion economy of the 12 euro nations and evidence of faster growth in the U.S. and Japan have increased the chances of a recovery. Infineon Technologies AG Chief Executive Ulrich Schumacher said Tuesday demand in the semiconductor industry is recovering.
``Chances are 60 percent for a modest, if unsatisfactory revival in Europe,'' said Michael Taylor, a senior European economist at Merrill Lynch & Co. in London. ``Confidence is improving and the key thing is now that this leads to stronger economic growth.'' The economy of the euro countries will probably grow 0.4 percent in the final quarter of the year from the previous three months, according to the median forecast of 25 economists surveyed by Bloomberg News. The ECB expects a recovery to start in the second half of this year and to strengthen in 2004.
Duisenberg's Finale
The ECB, which holds two policy meetings a year outside Frankfurt, where it is based, will announce rates at 1:45 p.m. Frankfurt time. Duisenberg will brief the press gathered in Lisbon 45 minutes later. Signs have increased that Europe's economy may be growing again, especially in Germany. German industrial production rose at the fastest pace in three years and exports gained in July, pushing the country's trade surplus to a record. ECB council member Guy Quaden said in an interview last week he expects the euro economy to grow as much as 2 percent next year. The ECB defines growth of 2 percent to 2.5 percent as the fastest the economy can grow without fueling inflation. Clouding the outlook for faster growth, the euro has rebounded and gained 8 percent against the dollar in the past month, making it more difficult for European exporters to compete overseas. The euro's ascent to a record in May choked exports and pulled Germany, Italy and the Netherlands into recession in the first half.
U.S. Dependence
. Europe ships about a fifth of its goods to the U.S., where the economy expanded at a 3.3 percent annualized rate in the second quarter, the fastest pace in nine months. In Japan, the world's second-biggest economy, manufacturers became more optimistic for the first time in more than 2 1/2 years, the central bank's quarterly Tankan survey showed yesterday. Porsche AG and Bayerische Motoren Werke AG led German automakers' September U.S. sales gains, driven by models such as BMW's Z4 roadster and Porsche's Cayenne sport-utility vehicle, as consumers buy more luxury goods. ``We are very dependent on the U.S., which is sending mixed signals right now,'' said Peter Lockhofen, who helps manage the equivalent of $3.3 billion at DZ Capital Management GmbH in Frankfurt. ``In Europe, a recession is out of the question. The chance of a self-sustained recovery is 50:50.'' There have been some indications that the U.S. expansion may be slowing because of a contraction in employment. Consumer confidence fell in September to the lowest level since the U.S. went to war against Iraq six months ago. The pace of manufacturing expansion slowed in September.
Rate Outlook
The European economy also isn't growing fast enough to make a dent in unemployment rates and some companies are still firing workers. Ford Motor Co., the world's second-biggest carmaker, said yesterday it will eliminate 3,000 jobs at a factory in Belgium as it struggles to return to profit in Europe. Germany's BGA exporters and wholesalers association said yesterday the economy will be slow to recover because growth in exports, equivalent to a third of the economy, may be damped by a resurgence in the euro, after finance ministers from the Group of Seven major industrialized nations signaled last week they're prepared to let the dollar fall.
The euro's gains have resuscitated speculation among some investors of a further rate cut by the ECB, interest rate futures trading shows. The yield on the three-month contract for March settlement was 2.02 percent at 8:20 a.m. in Frankfurt, compared with 2.41 percent a month ago. The current three-month lending rate is 2.12 percent. A third of economists surveyed by Bloomberg News also expect lower rates by the end of the first half of next year, while two see a rate increase. Most predict the ECB will keep interest rates at the current level at least until the end of June. //www.bloomberg.com