The European economy is poised for recovery later this year and into 2000, according to the July monthly bulletin from the European Central Bank. The ECB does not give any indication of any interest rate change over the medium term. Base European interest rates are now likely to stay at 2.5 per cent over the coming months.
New data now points to a stabilisation of overall output and to an economic recovery in the second part of 1999 and into 2000, according to the ECB.
Very weak growth in two of Europe's largest economies, Germany and Italy, was behind the most recent interest rate cuts last year and in April. However, while the ECB pointed to some signs of recovery in the euro zone economies, it also noted that there are no clear signs yet of any recovery in the industrial sector.
The bank also points out that the risks to this economic outlook seem to have become more balanced, as it appears that the likelihood of further downward pressure on economic activity is now less than in previous months.
Prospects for a sustained world economic recovery have also improved, according to the ECB, with all the available data suggesting growth in the US remained robust, with recovery continuing in East Asia and Latin America, although less markedly in the latter. The economic prospects in Japan remain uncertain.
Taking all the information on recent monetary, financial market and other economic developments into account, the outlook for the maintenance of price stability in the euro area remains favourable, according to the ECB.
Nevertheless, it says "all available evidence points to the conclusion that in the short term and in the medium term, price developments should continue to be compatible with inflation remaining below 2 per cent".
The report also notes that Ireland is an exception to the recent weak growth across Europe along with Spain, Portugal, Luxembourg and the Netherlands, which explains the differences in inflation rates.
The decision of the US Federal Reserve to increase interest rates on June 30th had a "volatile" impact on the euro/dollar exchange rate over the month.
