Trichet verwacht dat economische groei in 2005 doorzet (en)

EUOBSERVER / BRUSSELS - Economic growth in the 12 countries that share the euro is set to become more broad-based and gather momentum in the coming year, according to a bullish statement by European Central Bank (ECB) President Jean-Claude Trichet.

Speaking to journalists after the monthly meeting of the ECB - at which interest rates were, as markets expected, left on hold at two percent for the 15th consecutive month - Mr Trichet said, "the information which has become available in recent months indicates that the economic recovery in the euro area has maintained its momentum and should remain firm in the coming quarters".

Furthermore, he added, "we expect the economic recovery in the euro area to continue and to become more broadly based over the coming quarters, leading to a somewhat stronger upswing in the course of 2005".

Backing up his optimistic words with numbers, the ECB head told journalists that the bank was raising its growth projections for 2005 for the euro area to between 1.8 percent and 2.8 percent, slightly higher than the June projections.

Oil price rise not affecting growth

Mr Trichet also soothed market concerns about the current high price of oil.

Although some dampening of growth could occur if the price were to remain very high, said Mr Trichet, it should be remembered that the relative price of oil is lower than during previous oil price shocks, such as the oil crisis in the 1970s.

However, high oil prices will increase the danger of rising inflation, warned the Frenchman. This in turn can lead to higher interest rates.

And some analysts saw hints from Mr Trichet that the ECB will soon increase rates. Joachim Fels from Morgan Stanley's European Economic Research team, said he saw "clear hints that the ECB is now leaning towards a rate hike, provided that the recovery remains on track and inflation expectations remain at their elevated levels".

Improvements to the euro rules

The President - who was joined at the Frankfurt meeting by EU Economics and Monetary Affairs Commissioner Joaquin Almunia and Dutch finance minister Gerrit Zalm - appeared cautious about proposed changes to the Stability and Growth Pact, due to be discussed in the Commission tomorrow (3 September).

Mr Trichet said, "The Governing Council remains convinced that there was and there is no need for changes to the text of the Treaty and of the Stability and Growth Pact".

However, he conceded that "improvements" could be made "in the implementation of the Pact".

Brussels will tomorrow unveil plans to reform the EU's fiscal rules. The plans are expected to allow member states to break the famous three percent ceiling during periods of slow growth.

At present, an excessive deficit is allowed only during a "severe recession".