Economic data puts ECB into unknown

If Mario Draghi (inset)and his colleagues at the European Central Bank were unsure of the need for further easing of policy on euro zone interest rates, economic data over recent days will surely have confirmed them in their intent.

Eurostat yesterday confirmed that growth across the block was an anaemic 0.2 per cent in the first quarter – just half the relatively unchallenging 0.4 per cent analysts had expected. Year on year, the growth came to just 0.9 per cent.

And what growth there was stemmed mainly from Germany, with a little help from Ireland’s recovering economy. France stagnated and, in Italy, the Netherlands, Finland and Portugal, economic output fell.

Even in Germany, which recorded growth of 0.8 per cent in the first three months of the year, economists expect the pace to slow over coming months.

Separate figures for industrial producer prices gave no succour either. Seen as a proxy for consumer price inflation, prices at factory gates in the euro zone fell again in April, by 0.1 per cent, the fourth successive retrenchment and a 1.2 per cent decline from this time last year. Of the five largest economies in the euro zone – Germany, France, Italy, Spain and the Netherlands – only the Spanish saw any increase in prices.

Actual inflation figures have been no better, with Eurostat data on Tuesday showing the annual rate dipping to 0.5 per cent from 0.7 per cent a month earlier. At a quarter of the ECB target rate of just under 2 per cent, the inflation figure is well within the danger zone.

Meanwhile unemployment remains stubbornly high.

Various ECB figures have over the past month stressed their determination not to be complacent about the risks of a protracted period of low inflation. Faced with this week’s wave of negative data, and having used most of the conventional policy levers, today’s meeting seems certain to signal a move by the bank into the realm of the unknown.