European growth shows 'progressive recovery'

European Central Bank President Jean-Claude Trichet said yesterday that economic growth in the 12-nation eurozone area was progressing close to its potential but would say nothing about what bank policy-makers will do when they meet this week to discuss interest rates.

“I am in my purdah period, so don’t expect any hint from me,” Trichet said in a remarks to the American Bankers Association’s International Monetary Conference.

The ECB is expected to raise interest rates on Thursday at a meeting in Madrid by at least one-quarter point from their current level of 2.5%.

Trichet said that by looking at the euro zone economy in the last 18 months: “One can observe a progressive recovery. We are progressively going up close to our potential; we are around our potential.”

Trichet said the target for sustainable growth was 2%, although he said he remains “very cautious, very prudent” about the economic outlook.

He said since the creation of the single euro zone in 1999, employment gains have been “a little bit more flattering” compared to that of the US.

Trichet said one disappointing area holding growth back was structural rigidities, in particular weak productivity in the labour market, which he described as “our main problem”.

“We are very hampered by the fact that labour productivity is not satisfactory at all,” he said.

Looking to the future, he said the challenges the eurozone faces include globalization and rising oil and commodity prices.