ECB economic growth forecast to take centre-stage this week

The European Central Bank’s economic growth and inflation projections for the eurozone next year are likely to take centre stage at this week’s meeting as investors watch for signs of moves for a rate cut in the embattled 17-member currency bloc.

Analysts are not expecting the Frankfurt-based ECB to announce tomorrow any major changes to monetary policy with the bank widely predicted to leave borrowing costs on hold at an historic low of 0.75%.

But concerns that the eurozone could lurch deeper into recession in the coming months have once again helped to fuel market speculation that the ECB will be forced to cut rates.

Unemployment in the eurozone surged to a record 11.7% in October as recession and fiscal austerity took hold across the region, data released on Friday by the European Union statistics office Eurostat showed.

Investors are likely to be focused on the ECB’s so-called staff growth and inflation projections, which ECB President Mario Draghi is to release at his press conference tomorrow following what will be the bank’s last rate-setting meeting for the year.

Analysts are expecting the ECB to revise down its growth outlook for next year after the eurozone slumped into recession during the third quarter.

The ECB’s projections are likely to point to annual inflation in 2013 edging down below the bank’s annual target of 2% after official figures released Friday showed consumer prices sliding to a 23-month low of 2.2% in November on falling energy costs.

“This will allow the ECB to continue to conduct a very loose monetary policy,” said ING Bank economist Peter Vanden Houte.

“For the time being the ECB stands ready to enact its Outright Monetary Transactions (bond-buying programme), but appears less focussed on another rate cut,” he said.

“But if the economy fails to show signs of life in the first quarter of 2013, a rate cut might still be in the cards,” he said. Inflation stood at 2.5% in October.

Another rate cut would represent the ECB’s fourth since Draghi took over as president in November 2011.

European financial markets are stable after the borrowing costs of nations at the centre of the debt crisis dropped in recent months.

This follows the ECB’s unlimited bond-buying programme announced in August along with the deal to cut Greek debt, which was hammered out last week by eurozone finance ministers and the International Monetary Fund.

Many analysts are, however, sceptical about whether another rate cut would help the struggling eurozone to emerge from its current economic downturn.

In the meantime, hopes have been growing that the currency bloc economy might be able to gain momentum towards the end of next year as world economic growth picks up speed.

This, of course, depends on the US Congress and White House reaching an agreement on the nation’s fiscal crisis.

Also looming large over the ECB as it enters the new year is the threat of declining investor confidence.

Many analysts believe that Spain could be forced early in the new year to seek a full bailout.

In addition, there are growing concerns about France — the eurozone’s second biggest economy - which is suffering from sluggish growth and weak competitiveness.