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(CEP News) Frankfurt - Noting that inflation expectations have been rising since the spring, European Central Bank Executive Board member José Manuel González-Páramo said the ECB will not allow the disanchoring of inflation expectations in the euro zone.
Speaking at an event in San Sebastian, Spain on Friday, González-Páramo said energy costs are filtering into service prices and that Europe will be in trouble if the inflation rate does not fall. He also suggested that the current inflation level of 4% would not decrease until the end of the summer. Turning to economic growth, González-Páramo noted downside risks to the economy, including protectionism, oil prices and ongoing financial market tensions. González-Páramo suggested that growth in the second quarter of 2008 could be lower than in Q1, but that Q2 GDP adjustments would be mostly technical. While noting that industrial production was weakening, González-Páramo still speculated that growth this year would be close to potential and forecasted a growth rate of 1.4% to 1.6% in 2009. He added that euro zone economic fundamentals are solid and that the capacity utilization is at its highest level since 1988. By Todd Wailoo,
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