Brussels, 30/10/2008 (Agence Europe) - While the deterioration in confidence indicators continues, a further fall in inflation would lead to a fall in eurozone interest rates by the European Central Bank (ECB). Already deemed “possible” by ECB President Jean-Claude Trichet, a relaxing of credit conditions, albeit uncertain, nonetheless seems to be shaping up for many market players reckoning on a further 50 base point fall during the meeting on Thursday 6 November (as was the case with the surprise fall on 8 October, EUROPE 9757). Such a movement would not come within the framework of concerted action but would take place after the US Federal Reserve's decision on Wednesday 29 October to lower rates to 1% and as observers say the Bank of England is intending to reduce British rates.
On Wednesday 29 October, Joaquin Almunia, Commissioner for Economic and Monetary Affairs, said that “in so far as inflationary pressures are easing, monetary and budgetary policies can contribute to supporting demand” in Europe. This is a covert advance to the ECB probably inspired by inflation figures for October that Eurostat is preparing to disclose on Friday 31 October. At 3.6% in September, the rate of inflation could, some analysts say, be close to 3.1% or 3.2%, under the impact of a rapid fall in the price of raw materials, including energy. In Germany, for example, inflation slowed down considerably in October, reaching 2.4% over one year, compared to 2.9% the previous month. The slowdown in price rises is also confirmed in Belgium, where the rate drops to 4.72% at an annual rate compared to 5.46% in September, and especially in Spain, where it reached 3.6% in October compared to 4.6% the previous month.
At the same time, confidence is waning. In October 2008, the Business Climate Indicator (BCI) for the euro area fell to values last observed in 2001, showing that industrial activity remains subdued, the European Commission announced on Thursday 30 October. This new decline was fairly sharp for managers' production expectations and assessment of total order books and export order books. The Economic Sentiment Indicator (ESI) also declined sharply in both the EU and the euro area (by 7.4 points in the EU and by 7.1 points in the euro area). After this decline, the largest ever registered, the ESI hit its lowest level since 1993 (80.4 points in the euro area and 77.5 points in the EU27). (A.B./transl.jl)