Global Economics

ECB Still Bullish on Eurozone Economy


The European Central Bank's Trichet left interest rates unchanged, saying eurozone economic fundamentals were sound

The European Central Bank on Thursday (10 April) left interest rates unchanged, despite the darkening economic clouds spreading across the Atlantic.

Speaking after the ECB's latest meeting, the bank's president, Jean-Claude Trichet, instead stressed that the economic fundamentals of the eurozone are sound and that the most recent information showed evidence of "strong short-term upward pressure on inflation".

"In fact, we are experiencing a rather protracted period of temporarily high annual rates of inflation, resulting mainly from increases in energy and food prices," he said.

Inflation in the eurozone currently stands at 3.5 percent.

"Incoming macroeconomic data continue to point to moderate but ongoing real GDP growth," he added.

As a result, the ECB president said the bank would stick to its primary mandate, which is the maintenance of price stability. The ECB has left its main interest rate at 4 percent since last June, while its counterpart across the Atlantic, the US Federal Reserve has repeatedly cut rates over the same period.

Nonetheless, despite his bullishness for the eurozone, Mr Trichet warned that uncertainty resulting from the turmoil in financial markets remained "unusually high" and that the ongoing financial crisis could last longer than initially expected.

However, he argued against the prospect of a worldwide recession. "While moderating, growth in the world economy is expected to remain resilient, benefiting in particular from strong growth in emerging economies.

"This should continue to support euro area external demand," he added.

Mr Trichet's comments stand in marked contrast to those coming from the International Monetary Fund, which sharply cut its eurozone growth forecast on Wednesday (9 April) to 1.4 percent this year from 1.6 percent.

The IMF also slashed its 2009 projection to 1.2 percent down from 1.9 percent.

"The ECB can afford some easing of the policy stance," it said.

The monetary fund headed by Mr Trichet's countryman, Dominique Strauss-Kahn, also warned that European banks are in as precarious a position as their American cousins.

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