FRANKFURT (AFX) - The European Central Bank said euro zone growth is likely to moderate further in the second quarter.
"Survey and confidence indicators as well as industrial production data suggest a pattern of continued growth moderation for the second quarter of the year, especially in the manufacturing sector, the ECB said in its July monthly bulletin.
Euro zone GDP grew 0.5 pct quarter-on-quarter in the first quarter, after a fourth quarter growth rate of 0.6 pct.
The ECB said domestic demand should gradually recover in the second half of the year, with annual 2001 GDP growth still expected to be in line with its 2.0-2.5 pct estimate for potential growth.
It said the decline in domestic demand seen so far has been stronger than expected, with investment being affected by adverse influences from the world economy and specific domestic developments relating to construction investment.
The ECB reiterated its forecast that euro zone inflation should fall back below 2 pct in 2002 in the absence of further unfavourable shocks, and said producer prices data already point to an easing of inflation pressures.
"Recent data on producer prices in the euro area also indicate that upward pressure on prices further along the chain of production may gradually ease," it said.
Wage developments have been satisfac tory so far but some concerns "may be justified" with regard to the future, it said. The ECB said wage deals will be of key importance for the inflation outlook.
"The maintenance of price stability over the medium term will need to be supported by continued wage moderation," it said. The ECB listed four areas which it will closely watch for risks to price stability -- wage developments, monetary growth, GDP growth and price-setting behaviour.
On price-setting, the ECB said it expects price transparency to limit any inflationary pressures arising from the changeover to euro notes and coins, and called on companies to follow the example of governments in pledging to make the transition price neutral or smoothed in favour of the consumer.