The European economy may be winning some respite from its sovereign debt crisis.
With the euro area teetering on the brink of a second recession in three years, data this week showed rebounds in German exports and French business confidence, suggesting the slowdown may be limited. The euro’s 10 percent drop against the dollar since late October and an easing of financial conditions may also provide support as leaders fight to restore investor faith in their region’s bond markets.
The signs of resilience hand European Central Bank President Mario Draghi room to keep the benchmark interest rate at 1 percent today after cutting it twice in the past two months and flooding the banking system with a record amount of cash. The pause may be brief if looming budget cuts and a credit shortage prove too powerful for the economy to withstand.
“The sense that the economy is in freefall is abating but it’s too early to talk of a turning point,” said Juergen Michels, chief euro-area economist at Citigroup Inc. in London. “The picture in the core countries has improved a bit and a weaker euro will help, but further austerity measures in the periphery countries will drag on growth, and the specter of a credit crunch has not been banished.”
Rate Decision
Only six of 53 economists in a Bloomberg News survey expect the ECB’s 23-strong Governing Council to cut its key rate today to what would be a new record low. Officials meeting in Frankfurt will announce their decision at 1:45 p.m. and Draghi will explain it to reporters 45 minutes later.
The Bank of England may also refrain from announcing new stimulus at noon in London today, maintaining its 275 billion- pound ($421 billion) bond-purchase target as the U.K. economy showed some signs of robustness heading into 2012.
