"Ladies and gentlemen, let me welcome you to our press conference and report on the outcome of today's meeting of the ECB's Governing Council. The meeting was also attended by Commissioner Almunia.
On the basis of our regular economic and monetary analyses, at today's meeting we decided to leave the key ECB interest rates unchanged. The information that has become available since our last meeting has further underpinned the reasoning behind our decision to increase interest rates earlier this month. It has also confirmed that strong vigilance remains of the essence so as to ensure that upside risks to price stability are contained. With key ECB interest rates at still low levels in both nominal and real terms, money and credit growth dynamic, and liquidity ample by all plausible measures, our monetary policy continues to be accommodative. If our assumptions and baseline scenario continue to be confirmed, a progressive withdrawal of monetary accommodation will remain warranted. Indeed, acting in a timely manner to contain risks to price stability remains essential to ensure that inflation expectations in the euro area are kept solidly anchored at levels consistent with price stability. Such anchoring of inflation expectations is a prerequisite for monetary policy to make an ongoing contribution towards supporting sustainable economic growth and job creation in the euro area.
Turning first to the economic analysis, all the main indicators in the euro area that have recently become available for the first half of the year show a significant improvement in underlying economic activity and indicate that economic growth was stronger than previously projected by official and private forecasters. According to Eurostat's flash estimate, on a quarter-on-quarter basis, real GDP grew by 0.9% in the euro area in the second quarter of 2006, significantly above the 0.6% growth rate recorded in the previous quarter. In interpreting recent GDP data, due account needs to be taken of the degree of volatility of quarterly growth rates, but they generally confirm our view that economic growth is broadening and becoming more sustained. The information on activity in the third quarter - coming from various confidence surveys and indicator-based estimates - continues to be favourable and supports the assessment of real GDP growing at rates around potential. Looking forward, the conditions remain in place for the euro area economy to continue growing at around the potential rate. Global economic activity remains robust, providing support for euro area exports. Investment is expected to remain strong, benefiting from an extended period of very favourable financing conditions, balance sheet restructuring, accumulated and ongoing strong earnings, and gains in business efficiency. Consumption growth in the euro area should also strengthen further over time, in line with developments in real disposable income, as employment conditions improve further.
This outlook is also reflected in the new ECB staff macroeconomic projections, which for the first time include Slovenia as part of the euro area projections for 2007. The projections foresee average annual real GDP growth in a range between 2.2% and 2.8% in 2006, and between 1.6% and 2.6% in 2007. In comparison with the June Eurosystem staff projections, the ranges projected for real GDP growth in 2006 and 2007 have been revised upwards, mainly reflecting the stronger growth recorded in the first half of this year, along with continued positive signals from a number of other indicators.
It is the Governing Council's view that risks to these projections for economic growth are broadly balanced over the shorter term. Over the longer term, uncertainty has augmented and downside risks relate mainly to potential further oil price rises, global imbalances and protectionist pressures, especially after the suspension of the Doha round of trade talks.
With respect to price developments, according to Eurostat's flash estimate, annual HICP inflation was 2.3% in August 2006, compared with 2.4% in the previous month. During the second half of 2006, and on average also in 2007, inflation rates are likely to remain elevated at above 2%, with the precise levels depending mainly on future energy price developments. While in our main scenario the moderate evolution of labour costs in the euro area is expected to continue in the remainder of 2006 and in 2007 - partly reflecting ongoing global competitive pressures, particularly in the manufacturing sector - lagged indirect effects of past oil price increases and already announced increases in indirect taxes are expected to exert a significant upward effect on inflation in the course of next year.