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Could factory data mean negative ECB rate?

Monday, June 03, 2013 - 01:42

June 3 - The downturn in euro zone manufacturing eased markedly last month. But as Joel Flynn reports, further action from the ECB could make or break the bloc.

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Some good news for the euro zone, but a ways to go yet. Manufacturing data showed the bloc's downturn eased markedly in May, but falling factory prices still failed to drum up new business. The data showed confidence in the euro zone was also improving. It's the highest reading since February last year, and the first time the downturn has eased in four months. But Morgan Stanley's Ian Stannard says Europe shouldn't get its hopes up just yet. SOUNDBITE: Morgan Stanley Head of European FX Strategy, Ian Stannard, saying (English): "I think the euro zone, particularly the periphery of Europe, is still going to be extremely weak, obviously Germany is still very much dependent on external demand, which is still going to be weak, particularly with China slowing, and Asia slowing. So we could still see a contraction in growth for this year." Markit's data suggests euro zone GDP will fall by 0.2 percent in the second quarter - extending the recession for a seventh successive quarter. Pressure on the European Central Bank to take more action is expected to increase, with the bank even considering negative interest rates. It's due to meet on Thursday. SOUNDBITE: Morgan Stanley Head of European FX Strategy, Ian Stannard, saying (English): "Longer term, when we look at some of the dynamics and the transmission channels or the- such as a depo rate cut, we're not sure as whether this would actually have a sustained impact on the euro. It's not actually clear what the transmission channels would be. It would have to be accompanied by some other measures which allow the impact to feed through into the market such as other measures to increase lending once again." It's not just manufacturing data causing concern. Euro zone inflation is still well below the ECB's two percent target. And unemployment has reached a new high.

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Could factory data mean negative ECB rate?

Monday, June 03, 2013 - 01:42