Most economists expect the ECB to cut interest rates at its meeting in the Slovak capital Bratislava on Thursday.
LONDON (CNNMoney)
The bank's governing council, meeting in the Slovak capital Bratislava, is under intense pressure to cut interest rates for the first time in 10 months as the prospects of economic recovery in the eurozone this year begin to fade.
Unemployment across the 17 eurozone states hit a new record just above 12% in March, inflation fell sharply in April and recent surveys suggest the German economy may be slowing, dragged back by the deep recession that is leaving its scars across southern Europe.
European stocks have rallied and yields on government bonds have fallen since mid-April as investors bet on the ECB cutting its main refinancing rate to a new record low of 0.5%. The bank has held the rate at 0.75% since July 2012.
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More bad news came Tuesday when Spain, the eurozone's fourth largest economy, reported a seventh consecutive quarter of recession. The annual pace of contraction accelerated in the first three months of this year to 2%.
Global growth concerns are also bolstering the case for a rate cut, even if it has little more than a symbolic impact.
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Analysts say a cut will provide only marginal relief for the weakest eurozone economies because it will do little to reassure banks that are restricting lending to small and medium-sized firms.
Some ECB watchers expect President Mario Draghi to unveil other measures to improve financing conditions. But even if he does, they're unlikely to include the kind of huge bond-buying programs that have been used by other major central banks to support markets and growth.
And while there have been signs that EU leaders may be prepared to ease up on the pace of austerity, the eurozone is not about to imitate Japan and embark on a new round of short-term borrowing to generate growth. So the ECB is still the only game in town.
First Published: May 2, 2013: 12:28 AM ET
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