'Slow recovery' expected despite German strength
Published 16/08/2010 | 05:00
Central Bank governor Patrick Honohan has dampened hopes of wider European economic growth, saying the picture remains one of "gradual" and "slow" recovery despite robust quarterly growth figures last week from Germany.
Mr Honohan, who is also a member of the European Central Bank's (ECB) governing body, was speaking in the Malaysian capital Kuala Lumpur yesterday.
He said the record low 1pc interest rate set by the ECB was likely to hold until late 2011.
"The story is a rather slow recovery despite the encouraging news from Germany," Mr Honohan said. He is touring Asia and is due to deliver a speech at Renmin University in Beijing this week and attend a conference in Tokyo.
Figures released last week showed that Germany's economy -- the biggest within the European Union -- grew at a rate of 2.2pc in the second quarter of this year. There is speculation that its gross domestic product (GDP) could rise 3pc this year. The country's economy shrank 4.7pc last year.
French GDP rose by 0.6pc in the second quarter of 2010, with expectations of a 1.4pc growth rate for the entire year. Ireland's GDP jumped 2.7pc in the first quarter of this year, fuelled by exports. Second-quarter figures are not yet available. GDP in the 16-nation eurozone rose 1pc in the second quarter.
Mr Honohan declined to comment directly on economist forecasts that see the ECB holding rates until well into 2011, but said he saw few signs of "excesses" emerging in asset prices.
"I don't see that at the moment, but that I think is something that will be in the back of everybody's mind in the months ahead," he added.
He also said there was no need for the ECB to seek early exit strategies from its fiscal support measures for the eurozone's banks. The ECB has been lending banks as much money as they require, but did fleetingly try competitive tenders for finance in April.
"If we look at the last few weeks . . . we see some widening of (sovereign) spreads rather than a narrowing, so from that perspective it would not be pointing in the direction of further exit steps of that type," the Central Bank governor said.
He added that the earlier move to competitive tenders had "highlighted pockets of sensitivity in the money markets that perhaps were unexpected".
He also said Ireland remained committed to reducing its budget deficit to 3pc of GDP by 2014 and stressed that financing Anglo wouldn't damage the ability to reach that target. The Government has so far received approval to inject over €24bn into Anglo Irish Bank.
"In terms of overall net borrowing for the Government, this is not a game changer," he said.