Outlook Upbeat on Euro Zone

The European Central Bank on Thursday gave an upbeat assessment of the euro-zone economy’s growth prospects, saying the expansion should continue despite higher energy costs.

Unlike the also optimistic U.S. Federal Reserve, however, the European bank has yet to begin tightening credit: At a meeting, the ECB left its key short-term interest rate unchanged at 2%, where it has been for 15 months.

The Fed, by contrast, has raised its key interest rate twice this year. The rate now is 1.5%. The Fed meets again Sept. 21.

ECB President Jean-Claude Trichet described the global economic recovery as strong and said this should support export-led growth in the area and help lift sluggish domestic demand.

Trichet’s remarks echoed comments last month by Federal Reserve officials, including Chairman Alan Greenspan, that higher oil costs would not crimp growth. The global economic recovery “has become both stronger and more sustainable,” Greenspan said in a statement to Congress released Aug. 24.

The euro region’s growth this year hasn’t been robust enough to bring down joblessness. Unemployment in Germany, for example, rose by 24,000 in August, pushing the total to the highest level since May 2003, according to data reported Thursday.

Trichet, however, said the ECB expected the euro-zone recovery “to continue to become more broadly based over the coming quarters, leading to a somewhat stronger upswing in the course of 2005.”

The ECB lifted the midpoint of its estimates for real euro-zone growth by 0.1 point for 2004 and 2005 to 1.9% and 2.3%, respectively.

Trichet warned that higher oil prices “could dampen both foreign and domestic demand.” Still, he said, “it should be kept in mind that the rise in oil prices is not only due to supply factors but also from global growth itself.”