LONDON (MktNews) – The European Central Bank’s assumption of a
gradual economic recovery in the eurozone has been confirmed by recent
data, but EMU economic signals remain “mixed” and both downside and
upside risks to the outlook remain, ECB President Jean-Claude Trichet
said Tuesday.

Speaking at a press conference following the International Monetary
Conference here, Trichet described the “robust pace” of global economic
growth as “undeniable,” but noted that high oil prices posed an ongoing
downside risk he said needed to be observed “with great attention.”

Trichet noted that there were some signs of possible stronger
eurozone growth dynamics, in particular the rise in sentiment indicators
like the Purchasing Managers Index, and indicated that there were also
signs that private consumption may be picking up. Nevertheless, he
observed that the “question of confidence” continues to plague the
eurozone.

“We have a number of surveys or indications which are not fully in
line with the recovery that we are observing with some other figures,”
he explained, “so that we qualify all the signals we are receiving as
mixed.”

Trichet described global imbalances as an additional downside
risk.

Noting the low level of interest rates in the eurozone, Trichet
said that the ECB had delivered price stability and kept inflationary
expectations low. Referring to the ECB’s decision last Thursday to leave
the benchmark interest rate unchanged, he said, “After having analyzed
the risks to price stability, we concluded that they were balanced.”

Trichet again pointed out the upward risk of high oil prices,
calling the recent effects of the price hikes “very visible.” He also
drew attention to rises in indirect taxes (particularly tobacco taxes)
and government administered prices (such as health care) earlier in the
year that are exerting upward pressure and so “should not be neglected”
in the analysis of consumer inflation.

Later, in the question and answer session, Trichet said it is still
“too early to say” whether current high oil price will persist. If they
do, he said, then they would both boost eurozone consumer prices and
dampen eurozone growth. In this regard, Trichet again stressed that the
ECB must remain vigilant to prevent second round effects from higher oil
prices.

Trichet nonetheless asserted his confidence that the ECB “will
deliver” price stability, which he said was not contradictory to growth
over the longer term. “(The ECB will keep) inflation in line with our
definition of price stability (below but close to 2%) in 2005,” he said.

He reiterated his assertion, last issued at Thursday’s monetary
policy announcement, that central bankers continue to “keep all
options open, have no bias and remain vigilant.”

Trichet again strongly urged eurozone governments to carry out
systemic overhauls, saying that there is a “strong link” between
structural reforms and better EMU growth. Otherwise, he warned, “we will
not be able to cope with the challenges and issues that we have now.”

–David Barwick Tel. 49-69-720142; email: dbarwick@marketnews.com

[TOPICS: MT$$$$,M$X$$$,M$$EC$]