Talk about being caught between a rock and hard place. The European Central Bank’s hands appear to be tied, given high inflation in the euro zone, at a time when it is expected that economic growth in the 15-nation currency bloc will slow significantly this year.
Economic sentiment was off sharply last month, falling to its lowest level since August, 2005. Business sentiment has since fallen across the retailing, construction and service sectors, as has industrial sector confidence and the outlook for orders. With the euro in full flight, and demand slowing in the U.S. and Britain (the euro zone’s main trading partners), exporters’ prospects are looking dim for this year.
Euro zone employment is relatively stable and, combined with expectations of higher inflation and attendant higher wage demands, this leaves the ECB in a quandary. The euro zone rate could even climb later this year.
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