european central bank : press conference – introductory statement introductory statement by mr jean - claude trichet, president of the european central bank and mr lucas papademos, vice - president of the european central bank, frankfurt am main, 3 july 2008. * * * ladies and gentlemen, the vice - president and i are very pleased to welcome you to today ’ s press conference. let me report on the outcome of our meeting, which was also attended by the president of the eurogroup, prime minister juncker, and commissioner almunia. on the basis of our regular economic and monetary analyses, we decided at today ’ s meeting to increase the key ecb interest rates by 25 basis points. this decision was taken to prevent broadly based second - round effects and to counteract the increasing upside risks to price stability over the medium term. hicp inflation rates have continued to rise significantly since the autumn of last year. they are expected to remain well above the level consistent with price stability for a more protracted period than previously thought. moreover, continued very vigorous money and credit growth and the absence thus far of significant constraints on bank loan supply in a context of ongoing financial market tensions confirm our assessment of upside risks to price stability over the medium term. at the same time, while the latest data confirm the expected weakening of real gdp growth in mid - 2008 after exceptionally strong growth in the first quarter, the economic fundamentals of the euro area are sound. against this background and in full accordance with our mandate, we emphasise that maintaining price stability in the medium term is our primary objective and that it is our strong determination to keep medium and long - term inflation expectations firmly anchored in line with price stability. this will preserve purchasing power in the medium term and continue to support sustainable growth and employment in the euro area. on the basis of our current assessment, the monetary policy stance following today ’ s decision will contribute to achieving our objective. we will continue to monitor very closely all developments over the period ahead. allow me to explain our assessment in greater detail, starting with the economic analysis. information that has become available since the june press conference confirms our previous expectation of rather weak real gdp growth in the second quarter of 2008, in part as a technical counter - reaction to the strong quarter - on - quarter increase of 0. 8 % in the first quarter. as we have stressed previously, the quarterly growth rates for the first half of this year have been subject to strong temporary and compensatory factors,

notably weatherrelated effects on the profile of construction activity. therefore, in order to assess the underlying momentum of euro area economic activity and to avoid being misguided by highly volatile quarterly outturns, it is necessary to evaluate the first two quarters of 2008 together. interpreted on this basis, the information available remains broadly in line with our expectation of moderate ongoing growth. looking ahead, both domestic and foreign demand are expected to support real gdp growth in the euro area in 2008, albeit to a lesser extent than during 2007. while moderating, growth in the world economy is expected to remain resilient, benefiting in particular from continued robust growth in emerging economies. this should support euro area external demand. as regards domestic developments, the fundamentals of the euro area economy remain sound and the euro area does not suffer from major imbalances. in this context, investment growth in the euro area should continue to support economic activity, as rates of capacity utilisation remain elevated and profitability in the non - financial corporate sector has been sustained. moreover, employment rates and labour force participation have increased significantly in recent years, and unemployment rates have fallen to levels not seen for 25 years. however, these developments, which support household disposable income and consumption, are unlikely to fully compensate the loss of purchasing power caused by higher energy and food prices. in the view of the governing council, the uncertainty surrounding this outlook for economic activity remains high, owing not least to the very high levels of commodity prices, and downside risks prevail. in particular, risks stem from the dampening impact on consumption and investment of further unanticipated increases in energy and food prices. moreover, downside risks continue to relate to the potential for the ongoing financial market tensions to affect the real economy more adversely than anticipated. concerns about the emergence of protectionist pressures and the possibility of disorderly developments owing to global imbalances also imply downside risks to the outlook for economic activity. with regard to price developments, annual hicp inflation has remained well above the level consistent with price stability since last autumn, reaching 3. 7 % in may 2008 and – according to eurostat ’ s flash estimate – 4. 0 % in june. this worrying level of inflation rates results largely from sharp increases in energy and food prices at the global level in recent months. looking ahead, on the basis of current futures prices for these commodities, the annual hicp inflation rate is likely to remain well above