Tuesday May 16, 2006 - 10:40:46 GMT
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INVESTICA Ltd - www.investica.co.uk
Euro-zone growth risks
The evidence continues to suggest that the ECB will increase Euro interest rates in June with ECB chief economist Issing stating that the bank will need to act if inflation and growth forecasts are confirmed at the forthcoming meeting. There will also be further speculation over a 0.5% rate increase even though a 0.25% increase is more likely. ECB officials, at this stage, also appear very calm over the Euro's rise while Euro-zone industrial production rose 0.4% in March.
There are, however, significant risks to the Euro-zone economy, especially as the underlying foundations are not robust. The risks were illustrated by a sharp drop in the German ZEW index to 50.0 in May from 62.7 in April, although the current conditions index remained strong. There were increased concerns over the impact of a stronger Euro and rising energy prices with confidence in the German government also deteriorating. Any sustained evidence of weaker Euro-zone growth would make it much more difficult for Euro-zone finance officials to accept further Euro strength and there would also be the risk of tensions between the ECB and national governments.
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