European Central Bank President Mr Wim Duisenberg said today the euro zone economy would stagnate in the first half of this year and he is unsure whether it can achieve one per cent growth in 2003.
"We do expect in the second half of the year a gradual recovery so that on average, I will not be bound at this moment, but the average. . . it will not be a very high figure, but it will be positive," he told reporters after addressing the Zurich Economics Club.
The ECB is in the process of revising its forecast for growth, now put at around one percent for this year, and is widely expected by financial analysts to cut that figure at the same time as it is seen cutting official interest rates of 2.50 percent.
Mr Duisenberg also said strong euro is helping to reduce inflationary pressures, although there are downsides.
"Strengthening euro has the beneficial effects to get inflation down and with that it helps the purchasing power of Europeans. On the other hand, there is no denying that it does undermine somewhat our competitive position in world markets, so there is always two sides to the coin," he said.
The euro reached fresh four-year highs today, flirting ever closer with its launch level at $1.1747 against the dollar.
Asked about the US policy toward its currency, which many analysts say amounts to an abandonment of the long-held iteration that a strong dollar is in US national interests, Mr Duisenberg was evasive.