All the elements are there for bold action by the European Central Bank to fight low inflation and high unemployment at their June meeting on Thursday.
The financial world is waiting to see what Mario Draghi and his policymakers will do to counter a slowdown in the eurozone’s recovery.
In the first three months of the year the bloc’s economy expanded by just 0.2 percent. Analysts had expect growth to be double that.
When compared with the same period last year, the economy grew by 0.9 percent, its second consecutive annual expansion after a 0.5 percent increase in the last quarter of 2013.
Tom Elliott, and investment strategist with deVere Group said: “Draghi has a couple of options: sits on his hands, do nothing and watch continued stagnation in much of the eurozone periphery. But I think he will engage in something. And a number of options are available, the most obvious is to cut interest rates perhaps by 25 basis points.”
Though there is considerable debate among economists about how much a 0.25 percent interest rate cut would help the fragile recovery.
What growth there was in the early part of the year was in Germany (0.8 percent), while France stagnated, and output shrank in Italy, the Netherlands, Portugal and Finland.
At the same time we learned industrial producer prices – what companies sell their goods for – fell in April for the fourth straight month, another reason for the European Central Bank to do something about the slide towards deflation.
Eurozone inflation has been stuck in the ECB’s ‘danger zone’ of below 1.0 percent since October. Coupled with weak growth the low inflation poses a risk for the recovery.
Draghi said last week the ECB was well equipped to get inflation back up to its target, which is just below 2.0 percent.