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Europe's top business group voiced optimism on Tuesday about the continent's economic future despite the global financial meltdown triggered by the collapse of investment bank Lehman Brothers. BusinessEurope, which speaks for some 20 million European companies, said falling oil prices and a weaker euro were expected to lift the eurozone's 2008 economic growth above the 1.3 percent forecast by the European Commission.
Euro zone inflation may be lower than the 3.6 percent anticipated by the European Union's executive arm in 2008, which may pave the way for the European Central Bank to cut its main interest rate next year from the current 4.25 percent.
"Our members do not consider that the situation is that pessimistic," BusinessEurope head Ernest-Antoine Seilliere told a news conference. Seilliere was speaking as central banks pumped massive amounts of extra funding into global financial markets for the second day running to stop money markets from seizing up. "We believe that if...inflation is able to decrease...in the coming months, we could anticipate at the beginning of next year that there will be a reduction of interest rates," he said.
The eurozone's economy grew 2.6 percent last year while year-on-year inflation was 2.1 percent. But with high prices of food and energy denting consumer demand and a strong euro hitting exporters, the economy shrank 0.2 percent in the April-June period on a quarterly basis.
BusinessEurope said growth would pick up towards the end of 2008, after oil prices have fallen towards $100 per barrel from July's highs of $147 and the euro had eased towards $1.41 from records of just above $1.6. It suggested an ECB rate cut would be all the more appropriate if economic slowdown continued longer than expected.
"The ECB has room for manoeuvre in case the slowdown is more pronounced," its economist Marc Stocker told the conference. Seilliere said European companies were relatively optimistic about their future because emerging markets continued to expand, Europe's unemployment was low and balance sheets of non-financial firms were strong. He did not expect any European bank to fail in a way similar to Lehman Brothers over the weekend, whose bankruptcy protection filing triggered a global equities sell-off.
"We consider the European banking system not to be threatened by what is happening in the US In Europe, no bank is considered in a dangerous situation," he said. He lauded the world's central banks for providing ample liquidity to the banking system, helping them to handle the financial turmoil.

Copyright Reuters, 2008

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