The euro zone's economy is recovering gradually and conditions are in place for a return toward moderate annual growth of around 2 per cent, European Central Bank (ECB) vice-president Lucas Papademos said yesterday.
However, persistently high oil prices pose a risk to growth and the ECB must remain vigilant against inflation, Mr Papademos told legislators on the European Parliament's monetary affairs committee when he presented the ECB's 2004 annual report.
"Recent data and survey indicators suggest continued moderate economic growth in the first half of 2005, with no clear signs of a strengthening in underlying economic dynamics," Mr Papademos said.
"Looking further ahead, the conditions remain in place for real GDP growth to increase towards trend rates," he added.
The ECB said its vigilance over prices had helped keep inflation expectations below the central bank's maximum 2 per cent threshold.
"However, risks to price stability remain on the upside, calling for continued vigilance on the part of the governing council of the ECB," Mr Papademos said.
The ECB cited dangers from higher oil prices - both directly and through their impact on wage demands - as well as from a continued rise in the amount of money lent by banks.
The economy grew by 1.8 percent, below the ECB's 2 to 2.5 per cent estimate of sustainable growth.
The ECB said it had done as much as it could to support Europe's economy by providing low inflation and cheap borrowing costs. ECB interest rates have remained at a historic low of 2 per cent since June 2003.
It also criticised governments for softening the EU's Stability and Growth Pact, allowing members to run bigger budget deficits without facing fines.
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