ECB sees hope for economic recovery


The European Central Bank (ECB) said today there were increasing grounds to expect euro zone economic recovery to take hold this year and build next year.

The central bank's policymaking council cut interest rates by half a percentage point in early June, bringing the benchmark rate to 2 per cent, an historic low. It left rates unchanged following a council meeting last week.

Mr Otmar Lang, an economist at Deutsche Bank in Frankfurt, said the upswing will be very weak which may still give the ECB room to lower borrowing costs.

"The ECB sees light at the end of the tunnel. But we have not yet changed our forecast for an interest rate cut," he said.

A Reuters poll of analysts taken late last month showed a majority still thought the ECB would cut rates later this year, with the trough in rates seen at 1.50 per cent.

The ECB said there were signs that confidence was stabilising in the euro zone. Rising real incomes should boost consumption and low interest rates should support investment.

Overseas markets also appear to be on a recovery trend which should boost foreign demand for euro area exports. "The gradual economic recovery should be accompanied by moderate wage developments and price-setting behaviour and is not therefore expected to contribute to price pressures," the ECB said.

However, there were still downward risks for this main scenario, even though these may have diminished recently, the ECB added.