The advanced GDP reading for the Euro-Zone showed the economy contracted 1.5% in the fourth quarter to mark the biggest downturn since the series began in 1995, while the annual rate of growth slipped 1.2% from the previous year, which is the first full-year drop on record, and conditions are likely to get worse as the International Monetary Fund forecasts economic activity to contract 2.0% in 2009. As the region faces its first recession in over a decade, fears of a deepening downturn may lead policymakers to take further steps to shore up the economy, and the European Central Bank is expected to lower the benchmark interest rate by another 50bp to a record-low of 1.50% as the outlook for growth and inflation falter. Meanwhile, as the overnight rate falls close to zero, the Governing Council may look beyond the interest rate to manage monetary policy, and is likely to adopt unconventional measures to stimulate the economy.
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