The euro zone economy is on track to recover this year but uncertainty about its short-term outlook has increased recently, the European Commission said today, adding to speculation the ECB may soon cut rates.
The EU executive's quarterly report predicted the economy of the dozen-member bloc would gather further momentum during the second half of the year despite the mixed signals sent by recent business confidence soundings.
Although buoyant world demand was offsetting the damage done to exports by the strength of the euro, risks persisted and the persistent weakness of consumption was a source of concern.
"Downside risks are mainly related to the persistent sluggishness of consumer spending in the euro area," the Commission said, adding consumption was weaker than might be expected against the current economic backdrop.
A drop in euro zone industry orders in January was the latest sign of the weak recovery momentum. Orders in January slipped 3.2 per cent from December and were down 1.8 per cent on an annual basis, data from Eurostat showed.
Mr Howard Archer, managing director of Global Insight, said the drop was very disappointing, adding to the case for the European Central Bank to cut interest rates sooner rather than later.
"We expect a 25 basis point interest rate cut in May, but a move this Thursday is looking increasingly possible," Mr Archer said, referring to the upcoming ECB council meeting.
AFP