Gloomy French, German data
bolster rate cut lobby
EUROPEAN interest rate cut advocates garnered more
ammunition yesterday as data showed deflationary forces at
work in the German economy and further weakness in
French industry.
Economists said the figures heightened the potential for a recession
in Europe's manufacturing sector, but were unlikely to convince
French and German central bankers of the need for lower rates.
Producer prices in Germany, Europe's largest economy, fell 1.2 per
cent in October, the biggest year-on-year decline since 1991 and
the third consecutive drop.
German business surveys from the influential Ifo institute have
become increasingly tinged with pessimism as the world's economy
shifts down a gear, prompting economists to begin talking about
deflation, even recession.
It's a similar story in France, Europe's second largest economy.
Surveys have shown firms are not yet planning to rein in production,
but the figures paint a dark picture. Data released yesterday showed
French manufacturing output fell a larger-than-expected one per
cent in September from August. Industrial production slumped 0.9
per cent in September after a revised 0.1 per cent fall in the prior
month.
Few expect the situation to improve anytime soon.
""There's a common feature between French manufacturing, the Ifo
survey and German PPI, and the common feature is that the
slowdown in the European manufacturing industry is turning into a
recession,'' Eric Chaney, economist at Morgan Stanley in Paris,
said.
If European interest rate convergence was not the main priority
ahead of the launch of the single currency in January, many believe
rates in Germany and France could be cut now.
France's Socialist-led coalition and Germany's new ""red-green''
coalition have called on bankers to cut the cost of borrowing, while
at the same time professing to respect the European Central Bank's
(ECB) independence.
A minority believe the Bundesbank and the Bank of France may be
primed for a cut as soon as Dec 3 when both hold policy meetings
only two days after an ECB meeting. -- Reuters
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