ECB officials flag slight 2007 slowdown

Euro zone economic growth will slow slightly next year, European Central Bank officials said.

Euro zone economic growth will slow slightly next year, European Central Bank officials said.

Their comments reinforced market expectations of a December increase in the main ECB interest rate to 3.5 per cent, but they gave no guidance on the bank's intentions for 2007.

ECB Governing Council member Nout Wellink said growth would fall in 2007 to around its potential rate, which economists estimate is around 2 per cent. Currently growth is likely to match the 2.7 per cent annual rate recorded in the second quarter, the best in six years.

In Helsinki, ECB Executive board member Gertrude Tumpel-Gugerell said today that the economy was on track to grow "as expected" next year. "There are no new developments," she said.

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ECB staff forecast the euro zone economy will grow around 2.5 per cent this year, its fastest pace since the 2000 dotcom boom, and slow to about 2.1 per cent in 2007.

Uncertainty about the effect of a cooling US economy, a rise in German value-added tax and oil prices has made it hard for economists to forecast the outlook for next year.

ECB President Jean-Claude Trichet said he would keep an eye on prices, saying headline inflation in the euro area has been at high levels for some time, despite a September retreat.

Mr Trichet has already signalled the ECB is likely to raise its key rate in December to 3.5 per cent, in what would be its sixth quarter percentage point rise in 12 months.