The European Central Bank (ECB) has warned that there is no sign of economic growth in the euro zone picking up, as high oil prices continue to cast a shadow over the economy.
The ECB's monthly bulletin for April, which was published yesterday, predicted moderate economic growth over the medium term.
"Global growth remains solid, providing a favourable environment for euro area exports," it said. On the domestic side, investment is expected to continue to be supported by very favourable financing conditions, improved profits and greater business efficiency. Consumption growth should develop in line with real disposable income growth. However, at the same time, persistently high oil prices in particular pose downside risks to growth," it said.
The report said that oil prices, which have risen by more than 50 per cent in the past year, also represent the biggest threat to price stability in the euro zone. The ECB expects inflation to remain just above 2 per cent in the coming months but yesterday's bulletin warned against allowing the rise in oil prices to push up prices.
"Given recent oil price rises, it is once again paramount that second-round effects stemming from wage and price-setting throughout the economy are avoided. It is particularly important that the social partners assume their responsibilities in this respect. In addition, developments in longer-term inflation expectations need to be monitored closely," it said.
The ECB said that consumers in the euro zone generally believe that inflation is higher than it is, although Ireland is one of four countries in which perceptions of inflation have recently become more realistic. The report said that, following the euro cash changeover in 2002, consumers believed that prices had soared.
"While no drastic movement in actual inflation was observed in early 2002, the qualitative indicator of perceived inflation increased dramatically and reached a peak in January 2003," it said.
