European Central Bank vice president Lucas Papademos sees weak economic activity extending through most of this year at least and says the ECB is ready to cut lending rates further if needed.
With the outlook for growth highly uncertain, 'it's quite possible that the recovery won't start until the beginning of 2010,' Papademos told the German weekly WirtschaftsWoche in an interview published today.
The ECB director defended rate cuts of 1.75 percentage points since October, which some have criticized as too timid, but said the bank could lower its main lending rate from the current level of 2.5% if the situation called for it.
'If, in our assessment, the risks to price stability change further in the coming months, monetary policy could be eased further and we will act appropriately,' he said.
Papademos said the ECB did not expect the 16-nation euro zone to suffer from deflation, but noted that inflation could fall sharply in 2009 and could briefly dip into negative territory in some countries before picking up again later in the year.
Commenting on economic rescue plans outlined by several euro zone countries, Papademos stressed that 'it is vital that any government stimulus shouldn't undermine confidence in the long-term soundness of public finances and shouldn't impair the credibility of the Stability and Growth Pact.'
Under the pact, euro zone members are bound to maintin public deficits below 3% of gross domestic product and public debt of no more than 60% of GDP.
