Eurozone recovery seen on track

Despite rising prices for oil and food, the eurozone economy is expected to growth by 2-2.5 percent this year

BERLIN, Germany -- The eurozone economy is picking up steam and should begin recovering later this year, according to the European Central Bank's chief economist.

Otmar Issing said on Wednesday that despite strong inflationary pressures, such as higher oil and food prices, the economies of the 12-nation zone were on track to meet the ECB's growth target of between 2 and 2.5 percent in 2002

"The euro area will be back at growth potential rather sooner than later,'' Issing said in a speech on Wednesday in Berlin. "We expect the economy to recover in the course of the year.''

Issing said the eurozone has been in recovery since the start of this year, after slipping into recession in the last quarter of 2001.

"Despite repeated upward shocks to price development in the period since 2000, which kept inflation above 2 percent for an extended period, longer term inflation expectations... remained firmly anchored at levels consistent with the ECB's definition of price stability.''

The biggest shock to the eurozone has been higher oil prices, he said.

Price have been rising due to ongoing conflicts in the Middle East, threats of export cuts by some Muslim oil producing countries and a strike by workers at Venezuela's state-owned oil company.

Crude has jumped about 25 percent this year, reaching a high of nearly $28 a barrel in early April. Brent crude for May delivery was up 65 cents to $25.23 at midday in London on Wednesday.

Issing admitted rising oil prices had worsened the eurozone's inflation outlook but not enough to hamper the economic recovery.

"There is no reason to sound the alarm, every increase in this price (oil) leaves its traces, even if only temporary,'' he said. "If this (oil) price rise stays temporary, there will be a temporary rise in consumer prices, but this does not entail a lasting dampener for growth."

Eurozone inflation reached 2.5 percent in March, up from 2.4 percent in the previous month.

Issing said he expects that inflation in April "will probably not be below 2 percent," but it will continue to decline this year.