european central bank : press conference - introductory statement introductory statement by mr willem f duisenberg, president of the european central bank and mr lucas papademos, vice - president of the european central bank, at the press conference held in lisbon, 2 october 2003. * * * ladies and gentlemen, the governing council of the european central bank today met for the eighth time outside frankfurt. i would like to thank both governor constancio for his invitation and generous hospitality, as well as the staff of the banco de portugal for an excellently organised meeting. turning to business, we have decided to leave the key ecb interest rates unchanged. the basic components of our economic and monetary analysis remain in place. in particular, the medium - term outlook for price stability continues to be favourable, allowing us to conclude that the historically low level of ecb interest rates remains appropriate. this also lends ongoing support to economic activity. we will continue to carefully monitor all developments which might affect our assessment. the more detailed considerations underlying our decision are as follows : starting with the economic analysis, real gdp growth in the euro area was virtually stagnant in the first half of this year. however, the latest data and information are consistent with a moderate pick - up in activity in the second half. in particular, there are signs that economic activity might have firmed somewhat in the third quarter, and confidence indicators available up to september generally point to some improvement in economic expectations. in line with available forecasts and projections, this upturn should gradually strengthen in the course of 2004. externally, the recovery in world economic activity appears to be proceeding. this should support demand for euro area exports, counteracting the effects of the deterioration in price competitiveness. domestically, companies seem to be continuing their adjustment efforts to enhance productivity and profitability. this, together with the low level of interest rates, should contribute to a recovery in investment. furthermore, terms - of - trade effects stemming from the past appreciation of the euro should positively affect real disposable income in the euro area, and thereby private consumption. developments in financial markets are generally consistent with this overall picture. the short - term risks to our main scenario of a gradual recovery appear to be broadly balanced. however, some risks to the sustainability of economic growth at the global level remain. these are related to the medium - term sustainability of public finances in major industrialised countries and, in this connection, the adjustment of external imbalances in some regions of

the world. turning to the outlook for prices, according to eurostat ’ s latest flash estimate, hicp inflation in september was 2. 1 %. this was unchanged from august. for the remainder of this year, hicp inflation should hover at around 2 %. exchange rate developments help to contain short - term upward pressure on prices, while higher unprocessed food prices related to the hot and dry weather conditions in some euro area countries could imply some limited upward risk over the next few months. for early 2004, there is still some uncertainty about the precise impact on hicp inflation of planned increases in indirect taxes and administered prices in a number of euro area countries. looking beyond the short term, however, we continue to expect inflation to fall below 2 % in 2004 and to remain in line with price stability thereafter. this expectation is based on the assumption of moderate wage developments in the context of a gradual economic recovery. in this respect, we note that inflation expectations in the euro area are anchored at levels below but close to 2 % over the medium to long term. turning to the monetary analysis, the strong monetary growth over the past two years has been fuelled by past portfolio shifts, precautionary saving and the low level of interest rates. the latter factor also provided a counterweight to the negative impact of weak economic growth on loan developments. in fact, there are signs of a pick - up in the growth rates of loans to the private sector. at the current juncture, the accumulation of excess liquidity is not a cause for concern given the subdued economic growth in the euro area. however, if it were to persist in conjunction with a significant strengthening of economic activity, it could lead to inflationary pressures in the medium term. summing up and cross - checking the information from the two pillars, our economic analysis continues to confirm the expectation that price pressures will remain subdued in the coming years, in the context of a gradual economic recovery and moderate import price and wage developments. in view of the economic situation, the strong monetary expansion should not be seen as adversely affecting this outlook for the time being. overall, therefore, the medium - term outlook for price stability remains favourable. as regards fiscal policy, we would like to reiterate our serious concerns. there is growing evidence that most countries will miss their budgetary targets for 2003 by a significant margin and, in a number of cases, budgetary plans for 2004 are not reassuring. while the deterioration of budgetary