July 18 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said the bank expects the euro-region economy to gather strength toward the end of the year after a ``trough'' in the previous six months.

``We will have a trough in the profile of growth'' in the second and third quarters before ``a progressive return to ongoing moderate growth,'' Trichet told four newspapers in an interview published on the ECB's Web site today. Trichet said he has ``nothing to add or withdraw from'' the July 3 statement when the bank raised its key rate to 4.25 percent.

The 15-member euro region is losing momentum as record oil prices sap the spending power of companies and consumers just as a stronger euro makes exports less competitive. European economic confidence fell to the lowest in more than three years in June. Still, the ECB is concerned about companies raising prices and wages after inflation surged to 16-year high in June.

``The ECB itself seems unsure about the next move,'' said David Mackie, chief European economist at JPMorgan Chase & Co. in London. ``Our forecast suggests that there is no resolution over the coming months: growth keeps sliding and headline inflation keeps rising.''

Crude oil prices have increased 70 percent in the past year, reaching an all-time high of $147.27 a barrel on July 11.

Core Inflation

Some labor unions are already pushing for more pay to compensate workers for faster inflation. Deutsche Lufthansa AG, Europe's second-largest airline, earlier this month offered German baggage handlers and cabin crews a 6.7 percent wage increase after employees staged strikes. The Frankfurt-based carrier previously offered 5.5 percent more pay.

In Germany, Europe's largest economy, producer-price inflation accelerated to the fastest pace in 26 years in June, the Federal Statistics Office in Wiesbaden said today. European core inflation, excluding volatile costs such as energy, accelerated to 1.8 percent in June from 1.7 percent.

Trichet reiterated that the 21-member governing council is ``never pre-committed'' to a definite rate plan and ``will do in the future what is appropriate to deliver price stability.'' The ECB aims to keep inflation just below 2 percent.

``Today price setters and social partners must take into account that we will be back to price stability -- in line with our definition -- say over 18 months,'' Trichet said. The ECB has ``no further indication'' for ``future interest rates.''

`Relatively Hawkish'

``The overall message in my view is still relatively hawkish,'' said James Nixon, an economist at Societe Generale SA in London. ``The ECB could well hike rates again even as the economy skirts falling into an outright recession.''

For now, ECB council members are more concerned about faster inflation than slowing growth. Nout Wellink from the Netherlands told Elsevier magazine in an interview published on July 17 that ``it's a mistake to think that inflation will slow as the economy weakens.'' Portugal's Vitor Constancio said on July 15 that he doesn't see ``risks of recession'' in Europe.

The International Monetary Fund yesterday raised its global growth forecast for this year and said that higher borrowing costs may be necessary to combat inflation. The euro-region may expand 1.7 percent this year instead of a previously forecast 1.4 percent, the Washington-based fund said.

`Strong Dollar'

Investors have nevertheless scaled back bets on the ECB raising interest rates further this year, Eonia swap contracts show. The December contract is at 4.36 percent today, down from 4.55 percent on June 16. The April contract is at 4.40 percent.

Trichet reiterated that U.S. authorities' support of a ``strong dollar'' is ``very important.'' He also repeated China should allow its currency to appreciate, saying that it ``will be in the interest of all parties concerned.''

The euro has gained 9 percent against the dollar this year, prompting European policy makers to fret that it may deepen a European slowdown. German exports dropped the most in almost four years in May and French shipments also fell.

The interview was published in France's Le Figaro, Ireland's Irish Times, Germany's Frankfurter Allgemeine Zeitung and Portugal's Jornal de Negocios.

To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net

Last Updated: July 18, 2008 05:42 EDT