European Central Bank President Jean-Claude Trichet said today the euro zone economy would expand only modestly in the first half of this year with no signs yet of growth strengthening.
Mr Trichet also predicted that inflation would remain around current levels in the coming months, and added that both Europe and the United States had "homework" to do in helping to correct imbalances in the global economy.
"Recent data confirm that some of the downward risks to economic growth identified in the past, in particular those related to persistently high oil prices, have partially materialised over the last few months," he told the European Parliament's Economic and Monetary Affairs Committee.
Mr Trichet noted that euro zone gross domestic product had grown 0.5 per cent quarter-on-quarter in the first three months of this year. That was better than 0.2 per cent growth in the last quarter of 2004, but the acceleration had been due largely to technical factors such as the number of days worked.
"Taking those factors into account recent available indicators of economic activity suggest that the modest growth observed in the second half of 2004 will continue in the first half of 2005, with no clear signs as yet of a broadening or strengthening of the growth dynamic," he said.
The European Central Bank seems keen to raise its key interest rate from a historic low of 2 per cent, worried that cheap money will create problems with inflation in the future.
But weak growth, partly due to a surge in oil prices in the past year, means the ECB has been forced to keep the rate at 2 per cent, where it has been for almost two years.