Poor figures for industrial output in the euro zone may encourage the European Central Bank (ECB) to slow the pace of interest rate increases after an expected rise this summer, analysts said yesterday.
Only days after the ECB president Jean Claude Trichet signalled the possibility of further rate increases this year due to the strength of the euro-zone economy, analysts suggested the bank might adopt a more cautious stance beyond the summer if the trend of poor industrial output continued.
New figures from the EU statistical agency Eurostat show that industrial production did not increase in January over the previous month. The pace of annual growth slowed to 2.5 per cent from 2.8 per cent in December.
Economist Austin Hughes of Irish Intercontinental Bank said the latest figures would not affect the ECB's commitment to further increases, but added that further weakness could affect timing of any further rate rises.
"Spring numbers on the economy may impact on the pace of the tightening. Unlike the ECB's previous tightening phase during 1999 and 2000, it will take its foot of the accelerator more slowly this time," he said.
"We know there's been a sawtooth pattern to industrial data over the turn of the year, possibly related to weather conditions, and that the ECB has been very strong in its efforts to distance its policy-making decisions from month-on-month vagaries. It has reached the decision that there is enough momentum to justify moving rates higher."
Economist Howard Archer of Global Insight consultants said the fact that the hard economic data remained "significantly softer" than survey evidence reinforced the belief that the ECB should be wary about tightening monetary policy too aggressively over the coming months. "However, for now at least, a third 25 basis point interest rate hike in June remains likely," he said.
The chief economist at Bear Stearns investment bank, David Brown, said: "While the ECB is upbeat about recovery, these numbers underline the recovery is on a vulnerable footing. But I still think the ECB has its heart set on 3 per cent euro-zone interest rates by the third quarter."
Mr Trichet said on Tuesday that the ECB was not committed to any particular timeframe as it moves to increase interest rates. The ECB raised rate by 0.25 of one percentage point at the start of this month after a similar rise in December..
ECB governing council member and governor of the Irish Central Bank John Hurley said in Dublin on the same day that the ECB needed to assess forthcoming data before being satisfied of the need for further rate increases.
The president of the German Bundesbank and fellow ECB council member Axel Weber said the present level of ECB interest rates was not holding the euro-zone economy back, and there was a growing risk of inflation.
