The European Central Bank is expected to cut its key interest rate by 50 basis points to 1% and consider additional unconventional measures this week, Christoph Weil, a Commerzbank's analyst said Monday. The central bank had already reduced the rate to the lowest level in the institution's 10-year history.
Analyst said today's Eurozone economic sentiment survey suggests that the Eurozone economy will have contracted by roughly 2% sequentially in the first three months of 2009. Though the pace of contraction should be slower in the second quarter, the economy seems unlikely to hit its lowest point until the end of the year.
By the second quarter, the central bank's rate cuts and economic packages would have a marked impact on the economy. Unemployment is predicted to increase steeply over the months ahead, resulting in less income with private household and weaker consumption.
Commerzbank expects GDP to fall 4.5% for the whole of this year, which would be followed by modest performance in 2010. The EU 16 is still likely to grow then at a below the long-term average.
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