Following the recent data suggesting that the euro area is slowly sliding towards a recession, the European Central Bank kept its benchmark interest rate at a record low of 1%.

Although this was widely anticipated, ECB president Mario Draghi pointed to new growth and inflation forecasts next month that may change the ECB’s policy stance.

Earlier in the week, data published by the EU statistics office showed that the jobless rate in the EU-17 bloc of nations that use the euro crept up to 10.9% in March from 10.8% in February. This is the highest number of unemployed since April 1997.

Spain had the highest rate (24.1%), followed by Greece (21.7%). In both countries, 51% of people under 25 are without a job.

In the meantime, Standard & Poor’s cut Spain’s sovereign credit rating by two notches to BBB+ from A, saying the country’s budget problems are likely to get worse because of the weak economy.

The agency also placed the country on a negative outlook, which suggests the possibility of another downgrade in the near future.

Although Spain’s credit rating is still three notches above junk status, the lower rating could increase the sovereign’s borrowing costs as investors are likely to demand higher interest rates to make up for the greater risk implied by the downgrade.

Finally, US GDP rose by an annualised rate of 2.2% quarter-on-quarter in the first three months of 2012. This is slightly weaker than the consensus forecast of 2.5%.

The details offer mixed messages. Consumer spending rose by a more-than-expected 2.9% and residential investment increased by 19.1%. On the other hand non-residential investment and government spending deluded. The solid pace of both exports and imports suggests global and domestic demand has perked up.

The bottom line is a modest recovery supported by increasing household income and a robust corporate sector that should support consumption and business investment going forward.

This article was compiled by Bank of Valletta for general information purposes only.