The eurozone's economic recovery is back on track, with inflation set to dip below 2 percent while growth picks up to its long-term cruising speed, European Central Bank Chief Economist Otmar Issing said on Monday. Economists expect the ECB to keep its main interest rate at a historic low of 2.0 percent for some months to come, until it is assured that the economy is on a solid footing after recent mixed signals. Most see borrowing costs rising later this year.
"We are back on track, we expect growth to continue more or less around the potential of 2 percent," Issing said in a speech to an economics seminar in London.
"This is on the one hand positive, on the other hand (this) indicates that the production potential in the euro area is far below what it should be."
The ECB sees growth at about 1.9 percent in 2005 within the 12-nation euro zone, according to the mid-point of the range in its December economic projections, an improvement on the 1.8 percent expansion expected in 2004.
Issing confirmed the central bank saw inflation falling below 2 percent in 2005 for the first time since 1999, despite a spike in December putting the starting point a notch higher than reported earlier.
"We expect that headline inflation will come down below 2 percent in the course of this year and remain within levels in line with our definition of price stability," he said.
Issing said the appreciation of the euro had supported the ECB's aim of price stability but exchange rate moves were not the focus of ECB policy setting.
"We are taking into account exchange rate developments but we would never target the exchange rate," he said.
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