The European Central Bank (ECB) has stopped raising interest rates for the first time in 15 months, as the economic downturn shows signs of worsening.
In a statement on October 26, the ECB said it kept its benchmark interest rate in the eurozone at 4%. This is the highest level since the currency was launched in 1999.
"Inflation is expected to remain high for an extended period. Price pressures in the region remain strong. At the same time, September inflation eased significantly and most data point to continued declines in core inflation," the statement said.
The ECB is set to start raising interest rates in July 2022. After 10 consecutive increases, inflation has fallen from a peak of 10.6% last year to 4.3% last month.
However, officials are concerned about a sharp slowdown in economic activity. The eurozone Purchasing Managers' Index (PMI) released earlier this week showed that manufacturing and services activity in the eurozone contracted sharply due to falling demand, leading businesses to cut jobs for the first time since early 2021.
"In the eurozone, things are getting worse. We would not be surprised if the eurozone enters a mild recession in the second quarter of this year," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
Germany, Europe's largest economy, is expected to fall back into recession after a modest rebound in the second quarter. Manufacturing has been falling for months and the service sector contracted in October.
An ECB survey released earlier this week showed that demand for loans from businesses and households fell sharply in the third quarter, while banks continued to tighten lending standards.
Ha Thu (according to CNN)
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