Economic uncertainties have markedly increased in the past months, but the European Central Bank is sticking to a base scenario of a limited slowdown with inflationary tensions, ECB Governing Council member Guy Quaden said in remarks published on Saturday.
"Since September, the ECB has been in a position of waiting. After two excellent years, 2006 and 2007, we were expecting a limited slowing of growth and the persistence of inflationary tensions," Quaden said in an interview with Belgian newspaper Le Soir published on Saturday.
"To date this base scenario has not been called into question, but what has changed since the summer is the increase in uncertainty," Quaden, who is governor of Belgium's central bank, said. "The European Central Bank does not like the rise of inflation either. But would it last if the economic slowdown turns out to be more pronounced than predicted?" he said.
The ECB left interest rates on hold at 4 percent earlier this month but pointed to upside risks to inflation as well as downside risks to growth, a combination which most analysts expect will keep rates unchanged until the end of 2008. Quaden said the only certainty today was that there is a significant crisis in the property sector in the United States, but its knock-on effects had not been established.
"Will it lead to a slowing of the rest of the American economy? It is inevitable, but will this be severe? We do not yet know. Will it have consequences for the rest of the world? That remains to be seen," he said. Quaden argued that the answer to the final question essentially depended on emerging economies, such as China, where the potential growth of domestic demand was enormous.
"Until now, many in our countries viewed China and the other emerging economies as a threat to our jobs. Today, they are our best hope," the Belgian central banker said.