Economy: There is a 50 percent chance of Europe slipping into recession despite euro zone interest rate cuts, according to Yves Mersch.
“We see that over the past weeks and months the economy is practically in free fall,” the head of Luxembourg’s central bank and member of the European Central Bank board of governors told RTL radio on Thursday.
“A few months ago we considered a probability of less than 10 per cent, namely that we could fall back into recession and have negative economic growth over more than one quarter. That probability has in the meantime risen to over 50 percent,” said Mersch (photo, left).
The comments came after Mario Draghi (photo, right) began his presidency of the ECB by presiding over a cut in the euro area’s main interest rate from 1.5 to 1.25% effective November 9. At a press conference in Frankfurt, he was more measured than Mersch, saying economic growth in the euro zone “is expected to be very moderate in the second half of this year,” due to an overall slowdown in global demand and worries over Europe’s sovereign debt crisis.
At the same time, the ECB chief expects Europe to benefit from economic growth in emerging markets, low interest rates, and state support of the financial sector.
He expects euro zone inflation to remain above two percent in the coming months, but fall below two percent in 2012.
Draghi, formerly the chief of Italy’s central bank, was appointed in July to an eight year term. On November 1, he succeeded Jean-Claude Trichet, who became president of the ECB in 2003.