By Mike Caggeso
A spree of economic props dominoed across Europe today (Thursday) all sharing the same theme – stopping the global financial crisis from getting worse.
The European Central Bank took a drastic step to protect the Eurozone economy from shrinking further by lowering its benchmark interest rate by three-quarters of a percentage point to 2.5%.
As ECB President Jean-Claude Trichet announced the largest cut in the Eurozone's 10-year history, he said that the region is bracing for negative growth next year.
"Global and euro-area demand are likely to be dampened for a protracted period of time," Trichet said at a press conference in Brussels today, Bloomberg reported.
The ECB estimates average annual real gross domestic product (GDP) growth to be between 0.8% and 1.2% in 2008, between -1.0% and 0.0% in 2009 and between 0.5% and 1.5% in 2010.
The ECB's rate reduction followed two other huge central bank cuts in Europe.
The Bank of England cut its rate by one percentage point to 2%, its lowest level since 1951. That cut followed its 1.5 percentage point cut to 3% less than a month ago. Sweden's central bank also slashed a record 1.75 percentage points from its primary interest rate.
Meanwhile, France unveiled its own economic stimulus plan today – a $32.9 billion (26 billion euro) injection that will target infrastructure, support local authorities and help its own ailing auto industry. The goal is to increase its GDP by 0.6% next year and push its deficit to 3.9% of the GDP, Reuters reported.
Wrapping everything together, are the Eurozone's latest economic statistics, also released today, that said that GDP shrank 0.2% in the second quarter, investment dropped 0.6% and household spending remained flat.
Holger Schmeiding, chief European economist at Bank of America in London, said Europe is facing a "very serious recession."
"Despite a major monetary stimulus and some help from lower oil prices and a looser fiscal policy, we do not expect the economy to recover before late 2009," Schmeiding told Bloomberg.
Outside the Eurozone, four other countries recently slashed their primary lending rate earlier this week.
- New Zealand reduced its interest rate by 1.5 percentage points to 5.0%, a five-year low.
- Indonesia made its first interest rate cut since December 2007, reducing its key interest rate by one-quarter of a percentage point to 9.25%, Reuters reported.
- The Bank of Thailand cut its main interest rate one percentage point to 2.75%, its biggest reduction in eight years and its first cut in 16 months.
- Australia also cut its lending rate by a full percentage point to 4.25%, a six-year low.
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