US slowdown is dismissed by Duisenberg

The President of the European Central Bank (ECB) Mr Wim Duisenberg has played down the threat to Europe's economic recovery posed by a slowdown in the US economy. Speaking in Frankfurt after a meeting of the ECB's governing council left interest rates unchanged at 4.25 per cent, Mr Duisenberg acknowledged that US growth was slowing down, but said it did not represent a potential, external shock to the euro zone.

"All indications are that the US economy is in for a soft landing rather than a hard landing. I think the euro-zone economy can weather this storm - or weak wind - with ease," he said.

Mr Duisenberg said all the data available to the ECB showed that Europe was in for a period of robust economic growth with inflation under control. But he predicted that average inflation in the euro zone would be close to the ECB's upper limit of 2 per cent and warned that all the risks were on the upside.

"Over the coming months, the rate of increase in consumer prices could continue to be affected by lagged effects of the increase in import prices.

"For the outlook for price stability in the medium term, it is essential that these short-term movements of inflation do not become protracted and translate into second round effects," he said.

The ECB President defended last month's decision to increase interest rates by half a percentage point and hinted that no further increases were planned at least until the autumn. But he warned Europe's social partners that the economic recovery should not encourage them to abandon wage restraint and urged governments to accelerate the pace of labour market reform.

"It will be important, in the current phase of strengthening economic growth, for wages to continue on average to grow at rates compatible with the objective of price stability. "This, together with structural reform in the labour market, will be important to sustain the process of non-inflationary growth and to reduce unemployment in the euro area," he said.

The euro has hovered around 95 US cents against the dollar in recent weeks but Mr Duisenberg denied that the currency's recovery on the foreign exchange markets had faltered and predicted that it would continue to appreciate.