ECB sees weak euro zone economical growth in Q3

European Central Bank (ECB) Executive Board member Juergen Stark said yesterday that growth in the euro zone is very much expected to remain weak in the third quarter but the economy should recover gradually next year.

Speaking to reporters following a speech at a conference in Frankfurt, Stark also said it was very clear that inflation would ease in the months ahead.

He said maintaining price stability was the best contribution that the ECB could make to the health of the economy of the euro zone. "At present there's low growth… and it's very likely that growth in the third quarter will be weak again," Stark said. "It's also very clear that in the months to come and the quarters to come inflation will come down," he said.

Stark said price stability was a necessary condition to revive euro-zone growth.

"Without a stable level of prices there will be no recovery," Stark said. "I guess that the present episode of weak economic growth will be followed by a gradual recovery in the course of the next year."

Stark added that there was no dilemma for the central bank as to where its focus should be at present.

"The central bank has a clear mandate that is to maintain price stability in the medium term and that is the best contribution to economic growth and job creation," he said.

European Central Bank President Jean-Claude Trichet and council members Juergen Stark and Ewald Nowotny signalled they are still concerned about inflation even with the euro-region economy on the brink of a recession.

The European Central Bank will do "whatever needed to deliver price stability", Trichet said at the conference in Frankfurt yesterday. At the same event, Stark said inflation is at "worrying levels" and Nowotny, who joined the European Central Bank board this month, said in Vienna it is too soon to sound the all-clear.

While the euro-region economy is struggling to recover from a second-quarter contraction, the European Central Bank yesterday kept interest rates at a seven-year high to push down inflation, which is running at 3.8 per cent.

European Central Bank council member Axel Weber has said he sees no room to lower the key rate from 4.25 per cent.

"This hawkishness that they are still coming out with about monetary policy, when you've had oil prices 40 per cent off

the highs and very weak indicators in Germany, for me and I'm sure for many others, that is a bit scary," said Jim O'Neill, chief economist at Goldman Sachs Group.