Look out for more interest rates rises – that is the sub-text to remarks by European Central Bank President Jean- Claude Trichet as he was addressing the European Parliament’s Economic and Monetary Affairs Committee in Brussels.
He said interest rates are still low enough to promote economic growth: “Conditions are in place for the euro area economy to continue to grow at solid rates. Euro area exports continue to profit from robust and broad based growth in the global economy. Domestic demand in the euro area is expected to maintain its relatively strong momentum as employment growth continues to strengthen, supporting real disposable income.”
Last week the bank raised the cost of borrowing in the euro zone to 4% and economists expect that there will be another increase to 4.25% in September.
However, just hours before Trichet spoke, the latest figures showed a fall in April industrial output in France and Italy, two of the three largest euro zone economies. Industrial output in the biggest, Germany, also recently dipped.
The European Central Bank still believes that the region’ s economy will continue to grow and recently raised its forecast for euro zone inflation for 2007.