Oct. 2 (Bloomberg) -- European Central Bank policy makers left interest rates unchanged for a fourth month on signs the economy is recovering. It was the last rate-setting meeting chaired by Wim Duisenberg after five years as president. The ECB's 18-member rate-setting council, meeting in the Portuguese capital of Lisbon, kept the main refinancing rate at 2 percent, the lowest in any of dozen nations sharing the euro since at least 1946. Duisenberg, 68, will be succeeded 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. Porsche AG said yesterday North American sales rose 94 percent in September.
``The recovery doesn't hinge on small interest rate steps in the one or other direction,'' Heinrich von Pierer, chief executive officer of Siemens AG, said in an interview yesterday. ``Still, I am happy about the first signs of the recovery.'' The euro economies will probably grow 0.4 percent this quarter of the year from the third, 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. The ECB holds two policy meetings a year outside Frankfurt, where it is based. Duisenberg will brief the press at 1:30 p.m. in Lisbon. On his way to the meeting today, Duisenberg told reporters he felt ``relief'' about chairing his last council discussion on interest rates. He was named the first president of Europe's most important central bank in 1998.
Recovery Signs
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 in an interview last week said 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 pace possible without boosting inflation. ``I would advise the ECB to wait and see what happens to the weak recovery that is already under way,'' Hans-Werner Sinn, head of Germany's Ifo economic institute, said in an interview yesterday. ``There are no signs that the economic crisis is getting worse.'' Clouding the outlook for faster growth, the euro has 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.
Porsche, BMW
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 No. 2 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, the German company that makes the 911 sports car, and Bayerische Motoren Werke AG, the world's second-largest maker of luxury cars, said yesterday sales in North America rose. 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.
`Shaky Legs'
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. ``The U.S economy is a risk for Europe, because the recovery there is standing on shaky legs,'' said Michael Schubert, an economist at Commerzbank AG. 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 curbed by a resurgence in the euro, after finance ministers from the Group of Seven major industrialized nations signaled last month they're prepared to let the dollar fall.
The euro's gains have resuscitated speculation among some investors about a further rate cut by the ECB, interest rate futures trading shows. The yield on the three-month contract for March settlement was 2.09 percent at 1:04 p.m. in Frankfurt, compared with 2.41 percent a month ago. The current three-month lending rate is 2.12 percent. A third of 16 economists surveyed by Bloomberg News on Friday expect lower rates by the end of the first half of 2004, while two see a rate increase. Most predict the ECB will keep rates at the current level at least until the end of June. European governments named Duisenberg the first ECB president in May 1998 on condition he step down prematurely in his eight- year term to make way for a French candidate.
Duisenberg will also chair the ECB's meeting in Frankfurt on Oct. 23. Policy makers aren't scheduled to set interest rates then. Trichet will start chairing the meetings from November. //www.bloomberg.com