Trichet says euro economy will shrink in 2009

European Central Bank President Jean- Claude Trichet said the euro region’s economy will shrink next year after the bank delivered the biggest interest rate cut in its ten year history.

“Global and euro-area demand are likely to be dampened for a protracted period of time,” Mr Trichet said at a press conference in Brussels today.

The ECB today lowered its benchmark by three quarters of a percentage point to 2.5 per cent.

Central banks around the world are cutting borrowing costs by unprecedented amounts in a bid to contain the fallout from the financial crisis, which has already pushed the euro region into its worst recession in 15 years.

The Bank of England cut its key rate by 100 basis points to 2 per cent, after last month lopping 150 points off its benchmark, while Sweden’s Riksbank today sliced 175 points off its main rate, taking it to 2 per cent.

The euro-region economy shrank 0.2 per cent in the third quarter as investment fell and consumer spending stagnated, the European Union’s statistics office Eurostat said today.

Until today, the ECB had restricted itself to two 50-point cuts since October, with Mr Trichet stressing its role as an “anchor of stability”.

Bloomberg