ECB’s Ewald Nowotny says euro zone growth could top expectations

European Central Bank governing council member Ewald Nowotny said economic growth in the euro area including its biggest economy, Germany, may exceed expectations this year.

“There is even potential on the upside” for this year’s gross domestic product in the currency region, Mr Nowotny said during a speech at a Euromoney Conference in Vienna today.

“Maybe some countries like Germany or Austria might reach two per cent growth.”

Mr Nowotny's comments contrast with those by ECB president Mario Draghi, who said last week that the risks for the economic outlook for the euro area "continue to be on the downside."

The ECB predicts the 18-nation economy to expand 1.1 per cent this year, while Bundesbank expects German GDP to grow 1.7 per cent.

“We’re still cautious,” said Mr Nowotny, who also heads Austria’s central bank. Even so, better-than-predicted numbers “might be something to expect,” he said.

The euro rose more than a quarter of a cent after Mr Nowotny’s remarks and traded as high as $1.3699 before falling to $1.3676 at 11.57am in Frankfurt.

While the euro-area economy emerged from its longest-ever recession last year, growth slowed in the third quarter as exports and household consumption cooled.

The ECB last week strengthened its pledge to keep interest rates at current levels or lower for an extended period to support the recovery and fight low inflation rates.

“As we see inflation expectations well anchored, I don’t see a need for immediate action,” Mr Nowotny said.

He added that the ECB’s forward guidance is still valid and that “interest rates will be constant or lower for quite some time.”

The central bank kept its benchmark rate at a record low of 0.25 per cent last week after policy makers met in Frankfurt for their monthly rate-decision meeting.

“We neither see inflation nor do we see deflation in the euro area in the short term or medium term,” Mr Nowotny said.

“We are fully committed to our policy of forward guidance, we are prepared to be watchful and helpful with regard to interest rate policy as long as it fits into our main mandate of price stability.”

Inflation in the euro area slowed to 0.8 per cent in December. That’s less than half the ECB’s target of just below two per cent.

Mr Draghi said last week that while the currency bloc faces a prolonged period of low inflation, economic indicators are signaling a gradual recovery in economy activity.

“The view for Europe as a whole is now much better than a year ago,” Mr Nowotny said today.

Bloomberg