The European Central Bank has raised its GDP growth projections for this year and its inflation outlook through to 2007, according to a news report.
The Financial Times Deutschlandsaid that Germany's strong economic performance in the second quarter was a major contributor to the upward revision to GDP, while high oil prices pressured inflation.
It provides no figures and did not reveal its sources. The ECB is due to release its revised staff economic projections after its meeting on Thursday, where it is expected to hold interest rates but signal further tightening ahead.
In June, the ECB projected GDP growth this year in a 1.8-2.4 per cent range for a 2.1 per cent mid point, and 1.3-2.3 percent next year for a 1.8 percent mid point. Potential is viewed as somewhere around 2 per cent.
But better-than-expected performance in the second quarter, when GDP expanded at a 2.4 per cent year-on-year rate up from 2.0 per cent in the first quarter, has caused many analysts to revise upwards their forecasts for the euro zone.
Moreover, ECB Governing Council member Axel Weber in an interview with Reuters last week made clear that upward revisions to both growth and inflation are likely.
"For this year and next year, we see the economy strengthening, we see it gaining some momentum and we also see the recovery broadening," Weber told Reuters on August 22nd.
"The working hypothesis is that we will see growth at above potential, slightly above potential for this and next year." This improved growth outlook bears with it greater inflationary risks and could cause the ECB to continue missing its goal of getting HICP just below 2 per cent, he said.
"(Our projections show that) we are outrunning our comfort level both in 2006 and 2007," he said. "I see a risk that we will not be able to give the all clear in 2008 either."
In its June projections, ECB staff saw HICP inflation falling in the 2.1-2.5 per cent range for a 2.3 percent mid point in 2006, and 1.6-2.8 per cent range for a 2.2 per cent mid point in 2007.
But crude oil flirted with $80 a barrel in July before subsiding to $70 currently, which has put pressure on those average forecasts. HICP hit 2.4 percent in July after three months at 2.2 per cent