EU concerned over euro rise, keeps ‘08 growth view

European Central Bank President Jean-Claude Trichet said on Wednesday he saw ongoing GDP growth looking forward, but upward risks to price stability in the medium term. “Incoming information confirms the picture of moderating growth. Looking forward, ongoing growth is expected,” Trichet said in his opening remarks to the European Parliament’s Economic and Monetary Affairs Committee. He added that the euro area economy had sound fundamentals and was not suffering from major imbalances. “The incoming information has confirmed our assessment of prevailing upside risks to price stability over the medium term in the context of continued vigorous money and credit growth,” Trichet said. The ECB has kept interest rates on hold at 4% since June while national central banks have been cutting rates. The ECB wants to keep a lid on inflation -- currently at a record 3.3% -- but has faced pressure to cut rates in the face of slowing euro-zone growth. Economists believe the ECB will probably cut rates in May or June, a Reuters poll showed on Tuesday.

In a quarterly report on the economy of the 15 countries using the euro, the Commission noted rising uncertainty about how long turmoil on financial markets would last, how much it would cost and which institutions would be hit the most. The turmoil has affected investor confidence and the cost of credit, hampering growth. Euro zone growth would also slow this year because the US economy was already in or on the brink of recession, according to economists. “In the case of the euro area, the impact of the US downturn will also depend on developments in exchange rates,” the European Union’s executive arm said in the report. “In this respect, excessive volatility and disorderly movements in exchange rates are undesirable for economic growth and, in the present circumstances, excessive exchange rate moves are a source of concern,” it said.

The remarks are similar to the statement from euro zone finance ministers and the European Central Bank, meeting in an informal forum called the Eurogroup, from early March. The euro hit all-time highs at just above $1.59 on March 17. It has since fallen back, but is on the rise again. The report said record-high inflation, which in February hit 3.3% in annual terms, was another downside risk to euro zone growth. (Reuters)