22 March 2001, 11:49 US PRESS:ECB ISSING:EMU GROWTH RISKS HAVE RISEN IN PAST WEEKS
--But Says 2001 Growth 'Close' to 2-2.5% Potential Would Be 'Good News'
and an Indicator of a 'Robust' Economy
--Says Uncertainty on GDP Has Risen, But Cites High Consumer Confidence
--Says U.S./Japan Slowdown Impact on EMU Growth 'Noticeable But Limited'
--Repeats That Price Risks Now 'Much More Balanced' Than in the Past
--Says Current Inflation Developments of 'Concern,' But Temporary Factor
FRANKFURT (MktNews) - Downside risks to economic growth in the
12-nation euro area have increased since the end of last year and
uncertainty on that score has risen in recent weeks, Otmar Issing, chief
economist of the European Central Bank (ECB), said in an interview.
"Risks to growth have certainly increased to the downside since the
end of last year," Issing told the Wall Street Journal Europe (WSJE)
newspaper in an interview published Thursday.
"Over the past few weeks, this tendency has continued and
uncertainty has increased," Issing added.
While Issing's remarks appeared to indicate a slight softening of
the ECB's relatively upbeat assessment of eurozone economic prospects
this year, he again suggested that growth should be "robust" in 2001.
"Any number close to potential growth for 2001 is for me good
news," he said. "It is showing what I call robust growth."
Issing would not offer a precise forecast on economic growth, but
ECB officials have argued that eurozone GDP will expand this year at a
rate not much below 3%. The ECB has defined eurozone economic growth
potential as being in a range between 2% and 2.5%.
It was not clear whether Issing was implicitly softening the ECB's
view on growth. If he was in fact doing so, this could mean that the ECB
might not see a need to cut interest rates if growth slows more than it
had expected, especially if it remains concerned about inflation risks.
Issing played down the impact on Europe of the slowdown in the U.S.
and Japan. These developments will hit eurozone growth in a "noticeable
but limited way," he said, noting that the euro area is a relatively
closed economy that generates only 17% of its output from exports.
Issing conceded that the sharp decline in German business sentiment
in February and the larger-than-expected fall in eurozone industrial
production in January, both reported on Wednesday, were "of course not
good news." In particular, the "continuous decline in the Ifo index is a
matter of concern," he added.
But Issing immediately sought to put those developments into
perspective, noting that Germany accounts for only a third of eurozone
activity, according to the WSJE. The newspaper also reported that Issing
was "heartened" that eurozone consumer confidence is near record levels.
As to eurozone price developments, Issing offered a similarly mixed
assessment. While the ECB remains concerned about developments, these
are in many respects a temporary factor, and risks to price stability in
the medium term have become more balanced, he said.
"Current developments in inflation are still a matter of concern,"
Issing said. "But we assess this as a temporary phenomenon," he
continued, adding that inflation risks from money supply growth "have
more or less receded."
The ECB is "much more balanced in our assessment on the future than
we have been in the past," Issing said.
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