A European Central Bank policymaker said on Friday the bank had had a \u201cvery serious\u201d 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.<\/p>\n
The German and Austrian central banks separately suggested such a pick up is unlikely, forecasting scant growth in their economies in 2013.<\/p>\n
The ECB kept interest rates on hold on Thursday, but Governing Council members held \u201ca wide discussion\u201d about cutting interest rates from their current record low of 0.75 per cent.<\/p>\n
Jozef Makuch, one of the Council members, used the term \u201cvery serious\u201d on Friday to describe the debate.<\/p>\n
\u201cIf 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,\u201d said Makuch, who is also the governor of Slovakia\u2019s central bank.<\/p>\n
The latest growth forecasts paint a gloomy picture.<\/p>\n
The Bundesbank expects Germany\u2019s economy to grow just 0.4 per cent next year, down from a June forecast of 1.6 per cent.<\/p>\n
The new projection is marked by \u201ca high degree of uncertainty\u201d, it added, and \u201cthe balance of risks is on the downside\u201d.<\/p>\n
Austria\u2019s central bank cut its 2013 growth forecast for the country\u2019s 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.<\/p>\n
The downward revisions come a day after the ECB lowered its forecasts for next year, pointing to weaker growth prospects for the bloc\u2019s core countries such as Germany, France and the Netherlands.<\/p>\n
\u201cGiven the difficult economic situation in some euro-area countries and widespread uncertainty, economic growth will be lower than previously assumed,\u201d the Bundesbank said.<\/p>\n
\u201cThe cyclical outlook for the German economy has dimmed. Enterprises are cutting back their investment and hiring fewer new staff,\u201d the German central bank added.<\/p>\n
Germany has been a key growth driver of the euro zone, now in its second recession since 2009, but the country\u2019s resilience to the crisis is wearing thin and the central bank\u2019s new projections reflect this.<\/p>\n
Germany could even enter a recession \u2014 defined as two consecutive quarters of negative growth \u2014 the Bundesbank said, \u201cThere are even indications that economic activity may fall in the final quarter of 2012 and the first quarter of 2013.\u201d<\/p>\n
The euro, which had dropped earlier in the day against the dollar after the growth forecasts were published, extended its fall after Makuch\u2019s comments.<\/p>\n
Economists expect the German economy to contract in the fourth quarter but to improve as soon as in the first quarter.<\/p>\n
\u201cThe Bundesbank is quite negative about next year,\u201d said ABN Amro economist Aline Schuiling. \u201cWhat we are currently seeing is more and more evidence that the global industrial cycle is bottoming out.\u201d<\/p>\n