LONDON, Dec 4 (Reuters) - The euro zone recovery is gradual and risks remain, mainly from the financial sector and a possible spike in commodity prices, European Central Bank Executive Board member Lorenzo Bini Smaghi said on Friday.
The ECB does not see any major inflation risks, or risks of deflation, however, he said, adding that inflation expectations are well-anchored.
'Our forecast is quite cautious, we see no major inflation pressures over the next couple of years,' he said in a panel discussion at a University of Chicago event in London.
Unemployment is a major risk, however, which could hamper the recovery, as could a spike in commodity prices and the fact that the market sees a lot of risk to the financial sector.
He said the euro zone economy has 'stopped collapsing' and that confidence has improved, but said 'consumption remains weak and retail sales are weak'.
This points to a 'stabilisation of economy rather than a dramatic recovery', he said, adding that he expects the euro zone to come out of the current crisis both with a lower potential output and lower potential growth.
He does not expect a return to the levels of potential growth seen before the crisis 'for a long time'.
The money market is 'starting to function again', which he said was the main reason for the ECB's decision to start phasing out measures to provide plentiful liquidity.
The ECB moved firmly towards the exit on Thursday as it outlined plans to start cutting back emergency measures used to combat the financial crisis.
It kept interest rates unchanged at 1.0 percent.
It also raised its forecast for economic growth for next year, but indicated inflation would remain subdued over the next two years.
(Reporting by Jessica Mortimer and Tamawa Desai; Editing by Ron Askew) Keywords: ECB BINISMAGHI/ (tamawa.desai@thomsonreuters.com; Tel: +44207 542 7018, Reuters Messaging: tamawa.desai.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
The ECB does not see any major inflation risks, or risks of deflation, however, he said, adding that inflation expectations are well-anchored.
'Our forecast is quite cautious, we see no major inflation pressures over the next couple of years,' he said in a panel discussion at a University of Chicago event in London.
Unemployment is a major risk, however, which could hamper the recovery, as could a spike in commodity prices and the fact that the market sees a lot of risk to the financial sector.
He said the euro zone economy has 'stopped collapsing' and that confidence has improved, but said 'consumption remains weak and retail sales are weak'.
This points to a 'stabilisation of economy rather than a dramatic recovery', he said, adding that he expects the euro zone to come out of the current crisis both with a lower potential output and lower potential growth.
He does not expect a return to the levels of potential growth seen before the crisis 'for a long time'.
The money market is 'starting to function again', which he said was the main reason for the ECB's decision to start phasing out measures to provide plentiful liquidity.
The ECB moved firmly towards the exit on Thursday as it outlined plans to start cutting back emergency measures used to combat the financial crisis.
It kept interest rates unchanged at 1.0 percent.
It also raised its forecast for economic growth for next year, but indicated inflation would remain subdued over the next two years.
(Reporting by Jessica Mortimer and Tamawa Desai; Editing by Ron Askew) Keywords: ECB BINISMAGHI/ (tamawa.desai@thomsonreuters.com; Tel: +44207 542 7018, Reuters Messaging: tamawa.desai.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
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