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Eurozone economy 'to shrink 4.6%' Eurozone economy 'to shrink 4.6%'
(40 minutes later)
The eurozone economy will shrink by 4.6% in 2009, the European Central Bank has said, a much bigger contraction than its previous forecast of 2.7%.The eurozone economy will shrink by 4.6% in 2009, the European Central Bank has said, a much bigger contraction than its previous forecast of 2.7%.
The bank said it expected a marked improvement next year, with positive growth to return by mid-2010.The bank said it expected a marked improvement next year, with positive growth to return by mid-2010.
The comments came after the ECB kept eurozone interest rates on hold at 1%, in a move widely expected by analysts.The comments came after the ECB kept eurozone interest rates on hold at 1%, in a move widely expected by analysts.
Analysts said the ECB was keen to avoid sparking deflation, after May's eurozone inflation figure hit 0.0%.Analysts said the ECB was keen to avoid sparking deflation, after May's eurozone inflation figure hit 0.0%.
The Bank of England also kept UK rates on hold at 0.5% on Thursday.The Bank of England also kept UK rates on hold at 0.5% on Thursday.
Quantitative easingQuantitative easing
The ECB's president, Jean-Claude Trichet, is also set to give more details of how plans first announced last month to buy 60bn euros of company bonds ($85bn; £52bn) are progressing. At the press conference following the rate decision, the ECB's president, Jean-Claude Trichet, said that the bank's planned purchase of 60bn euros of company bonds ($85bn; £52bn) would start from next month.
The ECB is buying the bonds as a means to increase the amount of money in the financial system - a policy known as quantitative easing - to try to help the economy by returning lending by commercial banks to normal levels.The ECB is buying the bonds as a means to increase the amount of money in the financial system - a policy known as quantitative easing - to try to help the economy by returning lending by commercial banks to normal levels.
So far it has been far more cautious with its quantitative easing than the Bank of England and Federal Reserve, a decision that has been greatly welcomed by the German government. Mr Trichet said the bond purchases would be spread across the eurozone, which comprises the 16 nations that share the single currency, and completed before July next year "at the latest".
The ECB is continuing to be far more cautious with its quantitative easing than the Bank of England and Federal Reserve, a decision that has been greatly welcomed by the German government.
Berlin has long cautioned against the more aggressive stance taken in London and Washington, saying it builds up too much debt for the future.Berlin has long cautioned against the more aggressive stance taken in London and Washington, saying it builds up too much debt for the future.
Chancellor Angela Merkel criticised the Fed and Bank of England earlier this week for excessive spending to try to lift the US and UK economies.
The ECB last cut rates in May, when they were reduced to 1% from 1.25%. It has reduced rates seven times since last October, when rates stood at 4.25%.The ECB last cut rates in May, when they were reduced to 1% from 1.25%. It has reduced rates seven times since last October, when rates stood at 4.25%.