By Ralph Atkins
The eurozone’s economic recovery was surpassing expectations but it was too early “to declare victory”, the European Central Bank said on Thursday, striking a noticeably less gloomy tone than the US Federal Reserve.
Evidence was mounting that the three months to September would see stronger growth than originally forecast, according to Jean-Claude Trichet, ECB president. Uncertainty remained over outlook, but he dropped a previous description of the level of uncertainty as “high”.
In contrast, Ben Bernanke, Fed chairman, last month noted the outlook was “unusually uncertain” for the US economy and signalled the US central bank would be ready to act if more stimulus was needed.
Mr Trichet’s comments came just hours after Germany reported a stronger-than-expected 3.2 per cent surge in industrial orders in June, and Greece was praised by European Union authorities and the International Monetary Fund for its progress in implementing its emergency economic rescue programme.
Signs that the eurozone is over the worst of the crisis, which earlier this year threatened the stability of Europe’s 11-year-old monetary union, have boosted confidence in financial markets. Further steps in the ECB’s “exit strategy” to unwind exceptional measures taken at the height of the crisis will be considered in September.
Mr Trichet remained cautious, however, saying: “I don’t declare victory.” After a “particularly flattering” second quarter, growth would be less dynamic overall in the second half of the year. He was sending “absolutely no signal of changes in interest rates”.
The ECB on Thursday left its main rate unchanged at the record low of 1 per cent for the 15th consecutive month. In the UK, the Bank of England also voted to leave monetary policy unchanged.
In recent weeks, eurozone banks have reduced significantly the emergency liquidity demanded from the ECB. Market interest rates have risen as a result, but Mr Trichet said that simply reflected a “normalisation” process.
Nor did the ECB president see higher market borrowing costs and recent rises in the euro as, in effect, a tightening of monetary policy. He saw “exactly the contrary”, with the revival in confidence boosting growth prospects.
The difference in tone between the ECB and the Fed reflected the contrasting fortunes of the US and eurozone in recent months in the eyes of financial markets, Mr Trichet suggested.
“After having been extremely negative on Europe and extremely positive on the US, we are now observing some kind of swing in the other direction.” It would be “very premature” to take a “very negative” view on the US economy, he added.
Peter Vanden Houte, European economist at ING in Brussels, argued that the Fed was focused more on the economic outlook and the risks of deflation. “The ECB has been looking more at the normalisation on the financial side.”
But analysts warned the ECB’s relative optimism could prove misplaced. US and eurozone monetary policymakers gather in a few weeks for a regular summit in Jackson Hole, the US mountain resort.
“I can’t help wondering if, when euro area policymakers go hiking in Jackson Hole, they may not return a little bit warier,” said Julian Callow, European economist at Barclays Capital.
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