Economic growth in the euro zone has strengthened in the past few months and low interest rates are creating favourable conditions for domestic demand to recover, European Central Bank President Mr Jean-Claude Trichet said today.
In the foreword to the central bank's 2003 annual report, Mr Trichet gave the careful assessment of prospects for a gradual rebound that has been ECB policymakers' line for some time.
"Over recent months, economic activity in the euro area has increased. The growth of euro area exports has remained robust as a consequence of the dynamic expansion of the world economy," Mr Trichet said in the report.
"In addition, the conditions for a recovery in domestic demand are in place, not least as a consequence of the low level of interest rates and the generally favourable financing conditions."
The annual report largely reviews economic and monetary developments in 2003, when the central bank cut official interest rates by a total of 75 basis points to a record low of 2 per cent.
Mr Trichet, who took office in November last year, is due to deliver the 2003 annual report to the European Parliament's monetary affairs committee this morning.
In the report, he said that monetary policy last year preserved conditions for low inflation, which declined to 2.1 per cent in 2003 from 2.3 per cent the prior year.
But he stressed the central bank is keeping a watchful eye on developments, particularly the large amount of money in checking and savings accounts.
The report criticised European governments for violating the fiscal deficit rules of the Stability and Growth Pact, which underpins monetary union.