Trichet Repeats Eurozone Recovery Would Be Uneven

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The recovery process in the Eurozone economy is likely to be uneven, European Central Bank President Jean-Claude Trichet said Thursday, after the central bank retained key interest rate at a record low of 1%.

In his introductory statement, Trichet said this outlook remains subject to uncertainty. The outcome of the monetary analysis confirms the assessment of low inflationary pressure over the medium term, he added.

He noted that the the euro area has been benefiting from a turn in the inventory cycle and a recovery in exports, as well as from the significant macroeconomic stimulus under way and the measures adopted to restore the functioning of the financial system.

But, he asserted that these stimuli will unwind over time, while activity is likely to be adversely affected by the ongoing process of balance sheet adjustment in the financial and non-financial sectors, both inside and outside the euro area. Additionally, low capacity utilization rates are likely to dampen investment, and unemployment in the euro area is expected to increase somewhat further, thereby lowering consumption growth.

On prices, the central banker said inflation is expected to be around 1% in the near term and to remain moderate over the policy-relevant horizon. Trichet also said inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council's aim of keeping inflation rates below, but close to, 2% over the medium term.

He repeatedly urged banks to use the improved funding conditions to strengthen their capital bases further and, where necessary, take full advantage of government support measures for recapitalization.

Further, he pointed out that many euro area countries are faced with large, sharply rising fiscal imbalances. "It is of paramount importance that the stability programme of each euro area country clearly defines the fiscal exit and consolidation strategies for the period ahead," Trichet said. He urged countries to focus more on expenditure reforms.

(Market News Provided by RTTNews)