The European Central Bank (ECB) has described the inflation outlook in the euro zone as good and predicts a mild economic recovery later this year.

Presenting the ECB's annual report for 2002 to the European parliament yesterday, the bank's vice-president, Mr Lukas Papademos, said the uncertainty that has plagued the European economy was not likely to abate for a few months.

"We expect a rather moderate pace of economic growth in the first half of 2003," he said.

In his foreword to the ECB report, the bank's president, Mr Wim Duisenberg, defended the ECB's monetary policy and said that keeping inflation under control depended on euro-zone governments and social partners.

"In early 2003, the prospects for price stability in the medium term look rather favourable, provided that wage developments remain moderate. Moreover, one of the main messages of 2002 still applies, namely that the pace of structural reforms should be stepped up. This is because more flexible labour and product markets lead to faster price adjustments (thereby facilitating the work of monetary policy-makers) and, more generally, to lower price increases," he said.

The Bundesbank president, Mr Ernst Welteke, said in London yesterday that the low level of inflation offered the clearest evidence of the success of the ECB's monetary policy.

"With inflation expectations at just under two per cent, our monetary policy strategy and means of communicating it cannot have been too bad," he said.

The European Parliament's Economic and Monetary Affairs Committee yesterday considered the nomination of Ms Gertrude Tumpel-Gugerell, an Austrian central banker, for a position on the ECB's executive board. The committee must give its recommendation before the entire parliament votes on the nomination on May 14th. Ms Tumpel-Gugerell made clear to the committee that, if she joins the ECB's executive board, she will not be pressing for any change in the direction of monetary policy.

"Monetary policy has fulfilled its mandate. We were able to keep the inflation rate low and able to stabilise medium-term inflation expectations. Since the beginning of EMU, monetary policy has not been restrictive," she said. Ms Tumpel-Gugerell said that new EU members that want to adopt the euro should meet the same tests as the present members have.