Growth is set to pick up in the euro zone to 2.75 per cent next year, the European Central Bank said in its September bulletin.

It also said inflation was likely to rise from 1.1 per cent because of higher oil prices. However, it does not appear to think that inflation will rise to levels that will force it to raise interest rates in the coming months.

According to the ECB "forecasts currently available point to a strengthening of overall activity during the course of the year, and recent information has confirmed expectations of real gross domestic product growth of around 2 per cent in 1999, rising to around 2.75 per cent in 2000".

It added that if there was continued wage moderation, inflation would level off below 2 per cent.

The ECB does not publish its own inflation forecasts but it noted that analysts were predicting inflation in a range of 1 per cent to 1.2 per cent this year rising to 1.5 per cent in 2000.

Earlier this week the ECB president, Mr Wim Duisenberg, said he expected inflation to remain "well below" 2 per cent through to the end of 2000.

The benign outlook for inflation points to a likely period of stability for interest rates. According to Mr Jim Power, chief economist at Bank of Ireland, the ECB is sending out a relaxed signal.

"This should mean the ECB is not going to take back the half percentage point cut it imposed in April. They still don't think inflation is high enough to warrant pushing up rates again. They should remain on hold into the first quarter of next year."

However, the ECB bulletin did once again point to some pressures in the system. These include higher monetary growth, particularly money supply and private sector credit.

But it also warns that, because the figures have been subject to a number of revisions, they need to be "interpreted with particular caution and the data need to be analysed carefully".