Tuesday, 29 April 2008

Europe to slow into 2009, German inflation falls

The European Commission sees the European economy slowing through 2009. Reuters reports:

In its twice-yearly economic forecasts for the euro zone and the 27-nation European Union, the Commission said growth in the 15 countries sharing the euro would slow to 1.7 percent this year from 2.6 percent in 2007 and to 1.5 percent in 2009...

The Commission expects inflation, which hit a record high of 3.6 percent year-on-year in March, to accelerate to 3.2 percent in the whole of 2008 from 2.1 percent in 2007 and to ease to 2.2 percent in 2009.

But maybe inflation in Europe has already peaked. From Bloomberg:

Inflation in Germany, Europe's largest economy, slowed more than economists forecast in April as an early Easter led to a drop in costs for package holidays and vacation accommodation.

The inflation rate, based on a harmonized European Union method, fell to 2.6 percent from 3.3 percent in March, the Federal Statistics Office in Wiesbaden said today. Economists expected inflation to slow to 3.1 percent, according to the median of 27 forecasts in a Bloomberg News survey. From a month ago, prices fell 0.3 percent.

There are doubts that the fall will be sustained though.

"Today's figure is welcome, but likely to prove a one-off surprise," said Jacques Cailloux of Royal Bank of Scotland Plc in London and one of just three economists in the Bloomberg survey to predict the rate would drop below 3 percent. "I don't think that the data will help to alleviate the ECB's concerns on inflation."

Speaking of the ECB, Jean-Claude Trichet continues to sound as single-minded on inflation as ever. From Bloomberg:

European Central Bank President Jean-Claude Trichet said the bank must set interest rates with the sole goal of maintaining price stability, rebuffing calls from the French and Italian governments for it to take growth into account.

"It's crucial that the Governing Council sets the appropriate monetary policy stance on the basis of no other considerations than the delivery of price stability in the medium term," Trichet said at a conference in Vienna today. The bank's current policy stance "will contribute to achieving our objective," he said.

But while ECB officials have been talking, some of their European counterparts are taking action. Yesterday, Hungary's central bank raised its benchmark interest rate by a quarter of a percentage point to 8.25 percent while outside the EU, the Russian central bank also raised its main interest rates by a quarter of a percentage point.

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