Euro zone growth is expected to ease in the coming quarters, with risks to growth on the downside in the bloc's major trading partners, Governing Council member John Hurley said today.
He also said the European Central Bank has no monetary policy bias despite inflationary concerns.
Mr Hurley, who is also the Governor of the Irish Central Bank, said economic activity in the United States had remained subdued in the first half of 2008, while Britain's growth over the past year has "slowed noticeably".
"Economic activity in the euro area has remained stronger, but an easing in the growth rate is expected in the next few quarters before a recovery towards its potential growth rate," Mr Hurley said.
"The risks to the growth outlook are, however, on the downside in our main trading partners," he said in a statement accompanying the publication of the Irish Central Bank's annual report.
Mr Hurley said sharp rises in energy and commodity prices had added to "the challenging situation", driving up headline inflation rates globally, prompting concerns about a possible broadening of these increases into higher inflation generally.
"Our approach is to take action now to keep inflation expectations in line with the definition of price stability, preserve purchasing power in the medium term and, thereby, support employment and growth across the euro area," Hurley said.
Last week the ECB raised interest rates for the first time in over a year, taking them to a seven-year high of 4.25 per cent.
"It was also made clear, following the increase in rates, that the Governing Council has no bias regarding future monetary policy decisions, which will be determined by the incoming data," he said.
"In addition, we pointed to the need to avoid behaviour that might exacerbate the difficulties of the situation, for instance, by attempts to compensate ourselves for a change in the relative price of imported commodities," he added.
Mr Hurley said that in Ireland a "realistic approach" to wages was essential in improving competitiveness.
The Irish Central Bank said the risks to the euro zone's inflation outlook over the medium term were on the upside and appeared to have increased since the turn of the year.
The bank said this reflected the potential for further food and energy price increases and the risk that "price and wage setting behaviour could add to inflationary pressures".
The bank said the euro zone headline Harmonised Index of Consumer Prices (HICP), used for Europe-wide comparisons, remained above 3 per cent in the first-half of 2008.
"(It) is likely to stay above this threshold for some time, moderating only gradually over the course of 2009," the bank said in its annual report.
Bloomberg