ECB raises euro zone growth forecast
Published: Sep 2, 2010 23:46 Updated: Sep 2, 2010 23:46
BERLIN: The European Central Bank raised its growth projections for the 16-nation euro zone on Thursday, but stressed that the outlook remains uncertain and said its effort to keep banks supplied with credit would stay in place for the rest of the year.
The ECB left its benchmark refinancing rate at a record low of 1 percent for the 16th consecutive month, a move that was universally expected, and offered no indication that it might rise any time soon.
"We are very anxious not to create abnormal expectations," Bank President Jean-Claude Trichet said after a strong performance by export-fueled Germany led the euro zone to second-quarter growth of 1 percent compared with the previous three months.
"We have very good results in the last quarter but we do not say that it is victory," Trichet said at a news conference following the ECB governing council meeting in Frankfurt.
Trichet said recent economic indicators were better than expected, although they confirm expectations of "a moderation in the second half." "Looking ahead, the recovery should proceed at a moderate pace with uncertainty still prevailing," he said.
Trichet said the ECB is now projecting growth this year of 1.4 to 1.8 percent - a range that centers on 1.6 percent, up from the 1 percent forecast in June.
Its forecast for 2011 was for growth between 0.5 and 2.3 percent. That range centers on 1.4 percent, up from the previous 1.2 percent.
The ECB believes that «the risks to this improved economic outlook are slightly tilted to the downside," Trichet said, citing concerns about the possibility of renewed market tensions and uncertainty about growth prospects outside the euro zone.
Reflecting the ECB's desire to keep money flowing to the banking system in the aftermath of the government debt crisis, Trichet said it would stage three-month, fixed-rate tender operations in October, November and December.
He also said it would continue conducting one-week and one-month unlimited funding operations at least through Jan. 18.
Trichet didn't offer any hints as to when the ECB might end the program to buy up government bonds, which it launched at the height of the crisis earlier this year but has been close to dormant recently.
"Liquidity provision will remain ample, a next exit attempt will at the earliest only start in the first quarter of next year and rate hikes are still a distant future," said Carsten Brzeski, an economist at ING in Brussels.
"Today's meeting and particularly the decision on the liquidity program shows that the ECB still does not trust the recovery and the health of the financial system," he added.
There have been mounting concerns recently about the pace of the US recovery. Japan's economic outlook has darkened as the yen's rise pressures its exporters when its economy is barely growing, and there also have been signs of cooling growth in China.
Europe's economic rebound has largely been fed by a recovery in global demand. Euro zone exports grew by 4.4 percent in the second quarter.
US Federal Reserve chairman Ben Bernanke recently conceded that the Fed may have to back another round of monetary easing if the US economy continues to weaken.
Regarding the US, Trichet said that "perhaps one has to be careful not to follow a mood which is a little bit too cyclical." "What we see is more or less what we had in mind," he said. "We are not too much disappointed because we were not considering that it was likely to have growth which would be extraordinarily dynamic." In Europe, "the odds still heavily favor the ECB keeping interest rates at 1 percent through 2010 and very deep into 2011," Global Insight economist Howard Archer said. "The ECB is very aware that the euro zone's economy will be buffeted over the coming months by tighter fiscal policy increasingly kicking in across the region and likely slower global growth." Earlier Thursday, Sweden's central bank raised its key interest rate by a quarter of a percentage point to 0.75 percent, citing the pickup in exports and an improved labor market. Sweden is a European Union member but doesn't use the euro.
