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. Last Updated: 07/27/2016

Europe's Central Bank Sees Slow U.S. Growth

BERLIN -- European Central Bank chief economist Otmar Issing was quoted Monday as saying a "double dip" in the U.S. economy could not be ruled out but that continued slow growth was more likely.

"I share the view of the [U.S.] Fed that a double dip cannot be ruled out but that the chances of that are much lower than continued slow growth," Issing was quoted is saying in an interview with Handelsblatt newspaper.

A version of the interview was first published on Handelsblatt's web site on Sunday night.

Issing was quoted as saying financial market volatility made the current situation more fragile but it should not be assumed that share price declines would lead to a crisis in the broader economy.

"There is no reason to panic. The markets must find their balance," Issing said. But he also said the job of policy-makers at the moment was "to restore lost trust."

His comments come two days before the U.S. Federal Reserve's policy-making open market committee is due to meet to discuss interest rates. Most analysts expect the U.S. central bank to leave its key Fed funds rate unchanged at 1.75 percent.

Issing said the recent downward revision in U.S. gross domestic product data "unusual and worrying in its size."

But the correction should have little influence on ECB decision making, he said. "The revisions mainly affect the past.

"For this year it was obvious that the high first quarter growth in the U.S., coming mainly from the inventory cycle, would not continue as it was," he said.

Recent share market declines probably would have some negative influence on consumption but the question remained how large.

"Consumer confidence has not collapsed. After an improvement in the early months of this year, it weakened again somewhat. Now we have to have a new orientation. That is a consequence of uncertainty," he said.

Issing said he saw no risk of deflation in the euro zone following sharp falls on stock markets.

"If one means by deflation a sustained period of negative price developments, then I see absolutely no indication that this could happen in the euro zone," Issing was quoted as saying, adding that the ECB would not be influenced by unfounded fears of either inflation or deflation.

Issing said an important goal of monetary policy should be to insure that a bubble economy does not develop in the first place. "That is the most important lesson that central banks can draw from Japan's case."

Issing played down the significance of the sharp slowdown in June M3 money supply growth, saying it was only a single month's data. But he added that there was no immediate inflation danger signalled by money supply indicators.