(Reuters) - The euro zone and its constituent parts will report fourth quarter economic growth numbers at the end of the week, offering policy makers at the European Central Bank a needed snapshot of the bloc's underlying strength.
Recent evidence has been mixed. There has been general improvement but a growing disparity between Germany and France, the currency union's largest economies.
Reuters polls suggest euro zone GDP will come in at 0.2 percent quarter on quarter for a year-on-year increase of just 0.4 percent. Germany's projected 0.3 percent quarterly rise, however, would translate to a relatively strong 1.3 percent for the year.
The ECB sat on its hands last week but gave a fairly clear steer that action could be taken next month if new internal forecasts show a further deterioration in inflation - falling so low as to trigger some concerns about deflation - and growth.
Bank President Mario Draghi pointedly flagged the Q4 gross domestic product data as crucial to the bank's thinking.
But what to do? A small interest rate cut from 0.25 percent to somewhere just above zero is hardly going to be a game changer and the ECB has already said it won't prime bankswith long-term cheap money again unless they commit to lend into the real economy.
Bank stress tests looming to check on the stability of the financial system. Those samebanks are also being told to deleverage and build up capital.
So while a case can be made for more cheap long-term loans, or LTROs, if banks do commit to pass the money on to businesses, it would not be straightforward for them.
The ECB has discussed ceasing to soak up money it spent buying sovereign bonds during the euro zone's debt crisis. Ending such "sterilisation" would inject about 175 billion euros of liquidity into the financial system. That would ease strains in euro zone money markets but probably do little to boost inflation, which the central bank wants.
That leaves printing money, or "quantitative easing", one of the ECB's last unbroken taboos. It is a long way off if it comes at all. But as Japan has shown, it's one of the few levers that could get prices rising again.
SOURCE: Reuters
