Markets watch ECB for exit plan

Figures later this month are expected to show the 16 countries that use the euro joining the U.S. in leaving recession. Its two largest economies, Germany and France, officially returned to growth during the second quarter.

But the economic outlook is for weak growth at best, and below-target inflation for the year ahead.

Figures last week showed that unemployment rose to a 10-year high of 9.7 percent in September, while consumer prices fell for the fifth consecutive month in October. Both are signs of a slack economy.

Most analysts think it will take a very strong rebound over a long period of time to make up for the output lost during the recession and stoke inflationary pressures. The International Monetary Fund projects that the euro area will have contracted by a massive 4.2 percent in 2009 even after growing in the third and fourth quarters of the year.

“Rates are likely to remain low for a protracted period,” said Marc Ostwald, a strategist at Monument Securities, adding that a rate hike before the second half of 2010 still looks “very, very unlikely.”

What's more, there are mounting concerns within the bank and in member governments that the rising euro will derail the fledgling economic recovery. A higher euro makes exports more expensive, and exports are particularly important for Germany, the single currency bloc's largest economy.

Currency traders will therefore be focusing in on Thursday's press conference from ECB president Jean-Claude Trichet to see whether his concerns about the euro's value have increased over the last month. On Oct. 23, the euro climbed to a 14-month high of US$1.5060 before slipping back modestly since.

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