The euro zone economy should shrug off a weak second quarter and pick up in the second half of 2005, but the risks remain to the downside, ECB chief economist Otmar Issing said today.
Mr Issing said high oil prices were a handicap to growth and would push up inflation in the short term, although the region had weathered the latest rises better than many people feared.
Growth was likely to show a strong rebound in the first three months of the year but the ECB agreed with the European Commission that the second quarter would be the weak spot for 2005.
"We are at the moment going through a weak phase, there is no doubt," he told reporters after addressing a business conference in Frankfurt.
Economists have begun pushing back their expectations of an ECB interest rate rise amid an increasingly shaky outlook for the 12-nation bloc. Figures today showed French business confidence fell to an 18-month low in April, while in Germany, the euro zone's biggest economy, consumer sentiment fell.
In his speech, Mr Issing said the economic outlook remained under threat. "The risks to real activity are clearly on the downside," he said, noting that the opposite was true of inflation, due largely to oil but also ongoing excess liquidity.
Mr Issing said oil - which was trading above $54 per barrel today - pushed up short-term inflation but with no second-round effects as yet. "So far we have been spared this sequence of oil price rises, wage rises and overall higher inflation in terms of monetary policy, and I hope it stays that way," he told reporters.
But Mr Issing said dependency on oil had roughly halved since the oil price shock of the 1970s. "The high oil price leans heavily on the whole global economy, not just the euro zone, and it shows how important it was that the dependency on oil has been reduced," he said. "There is no question that it is a handicap for real economic development but at the same time the euro zone has weathered this latest oil price rise better than many had perhaps feared."