A European Central Bank policymaker said on Friday the bank had had a “very serious” debate about cutting interest rates this week and that a cut was possible next year if the euro zone economy does not pick up, Reuters reported.
The German and Austrian central banks separately suggested such a pick up is unlikely, forecasting scant growth in their economies in 2013.
The ECB kept interest rates on hold on Thursday, but Governing Council members held “a wide discussion” about cutting interest rates from their current record low of 0.75 per cent.
Jozef Makuch, one of the Council members, used the term “very serious” on Friday to describe the debate.
“If the situation does not improve, and there is relatively a small chance there will be a significant improvement, it is possible to expect a move in interest rates next year,” said Makuch, who is also the governor of Slovakia’s central bank.
The latest growth forecasts paint a gloomy picture.
The Bundesbank expects Germany’s economy to grow just 0.4 per cent next year, down from a June forecast of 1.6 per cent.
The new projection is marked by “a high degree of uncertainty”, it added, and “the balance of risks is on the downside”.
Austria’s central bank cut its 2013 growth forecast for the country’s export-dependent economy to 0.5 per cent from the 1.7 per cent it had expected in June, due to the global downturn, weak investment and sluggish consumer spending.
The downward revisions come a day after the ECB lowered its forecasts for next year, pointing to weaker growth prospects for the bloc’s core countries such as Germany, France and the Netherlands.
“Given the difficult economic situation in some euro-area countries and widespread uncertainty, economic growth will be lower than previously assumed,” the Bundesbank said.
“The cyclical outlook for the German economy has dimmed. Enterprises are cutting back their investment and hiring fewer new staff,” the German central bank added.
Germany has been a key growth driver of the euro zone, now in its second recession since 2009, but the country’s resilience to the crisis is wearing thin and the central bank’s new projections reflect this.
Germany could even enter a recession — defined as two consecutive quarters of negative growth — the Bundesbank said, “There are even indications that economic activity may fall in the final quarter of 2012 and the first quarter of 2013.”
The euro, which had dropped earlier in the day against the dollar after the growth forecasts were published, extended its fall after Makuch’s comments.
Economists expect the German economy to contract in the fourth quarter but to improve as soon as in the first quarter.
“The Bundesbank is quite negative about next year,” said ABN Amro economist Aline Schuiling. “What we are currently seeing is more and more evidence that the global industrial cycle is bottoming out.”