Euro zone economic recovery is on track and will strengthen in the course of this year, European Central Bank chief economist Otmar Issing said on Thursday. Consumer demand remained sluggish as people worried about their financial future. But strong global demand and favourable financing conditions were all helping the single currency bloc reaching faster growth, Issing said. "We are expecting the gradual economic recovery in the euro zone to continue and to strengthen in the course of the year," Issing said in notes prepared for speaking at a conference of savings banks in Bavaria. The ECB is widely expected to keep interest rates unchanged at its next policy-setting meeting on June 3 and financial markets are pricing in a first rate hike by end-2004.
There were also risks to the favourable growth outlook, most importantly from global imbalances such as the substantial growth differential between the United States and Europe. "Imbalances in the economic development between individual regions are not sustainable in the long run," Issing said. "The euro zone can make an essential contribution to the gradual and bearable reduction of the imbalances, if it succeeds in developing and fully using its no doubt high potential growth rate," he added. Favourable financing conditions and strong global demand were all helping the cyclical recovery in the single currency bloc and exports would gain even after the euro zone lost some of its competitive bite from euro's recent gains. "After a certain loss of price competitiveness through the clear appreciation of the euro, strong global demand will clearly boost euro zone exports," Issing said. The euro has lost some six percent from life highs above $1.29 reached in February, now trading around $1.2150. Consumer demand was the one component lacking from the recovery Issing said, as shoppers fear their financial future may be burdened by measures to reform European economies. The ECB is widely expected to hold interest rates unchanged at its next policy meeting on June 3 and financial markets are factoring in a first rate hike by end-2004. The central bank is also in the process of reviewing its economic forecasts for euro zone growth and inflation. The results will be published later in June, but the policy-setting Governing Council will already be familiar at next week's meeting.///