European Central Bank President Jean-Claude Trichet (l) and Deutsche Bundesbank President Prof. Axel Weber.

Germany's Central bank, the Bundesbank, said today that slowing growth may not be sufficient to reduce inflation in the Eurozone. In separate news, it was reported that the Eurozone's trade deficit expanded in June as a slowing global economy and the euro's rise against the dollar reduced exports.

Axel Weber, the Bundesbank President said  today that the German and the European economies remain in "robust shape" and that discussions about a possible end to the economic upswing are misplaced.

A short-term contraction "should not prompt us to conjure up the dangers of a recession," he said in a speech delivered in Hachenburg, Germany.

Weber, however did acknowledge that rising commodity prices and a slump in property markets in some European countries have weighed on economic sentiment in the region.

Weber, who is viewed as one of the most hawkish members of the Governing Council of the European Central Bank, said he does not expect the inflation rate to drop below 2 percent, the ECB's target rate, in 2009.

"It is all the more important to prevent people from anticipating high inflation rates over a longer period of time," he added.

The "massive increase" in energy and food costs and the resulting surge in consumer prices since last autumn are reasons for concern for monetary policy makers, Weber said.

The ECB may fail to achieve its inflation target for an 11th straight year in 2010, the ECB's quarterly survey of professional forecasters showed last week. Inflation may average 3.6 percent this year, 2.6 percent in 2009 and 2.1 percent in 2010, the report showed.

Also today, the Bundesbank said in its quarterly report, that: ``Economic activity may not weaken to the extent that one could expect a sufficient counter-reaction in prices.'' Risks to price stability in Europe remain ``high.''

In July, the ECB raised its benchmark interest rate to 4.25 percent.

The Bundesbank said growth may remain muted for ``some time yet,'' with the economy likely to experience a ``dry spell'' in the second half of the year. Nevertheless, it said it doesn't expect a further deterioration and noted that inflation expectations remain above the ECB's 2 percent price-stability limit.

``Despite the generally damped assessment of the growth outlook for the euro region, market participants' inflation expectations remain higher than what would be in line with price stability,'' the Bundesbank said. ``It's the duty of monetary policy to prevent increased price risks from translating into a lastingly higher inflation rate.''

Eurozone Trade Deficit

The Eurozone's trade deficit expanded in June as a slowing global economy and the euro's rise against the dollar reduced exports.

The 15-member country Eurozone had a seasonally adjusted deficit of €3 billion, compared with a €1 billion shortfall in May, as imports rose twice as fast as exports, Eurostat, the EU's statistics office said today. The June deficit was the biggest since August 2006.

European export sales to the US, the second-biggest export destination for the region, declined in 2008 while demand in China and Russia has held up. Rising oil and other commodity prices have pushed up import costs, resulting in a growing deficit.

Exports to the US fell 4 percent in the five months through May from a year earlier, according to Eurostat, which has provided detailed analysis for the first five months. Sales to the UK, the Eurozone's largest market, increased 2 percent.

In the import area, a 56 percent rise in oil prices in the past 12 months pushed up the cost of fuel. The Eurozone's energy deficit surged 40 percent in the January-May period, as imports of oil and other fuels surged rose 39 percent to €155 billion. Crude oil hit a record above $147 a barrel last month.