LJUBLJANA (Reuters) — European policymakers yesterday struck a confident note on the euro zone’s economic outlook and left in place market expectations for the European Central Bank to raise interest rates in March.“Slovenia is entering a currency union that is in good shape,” ECB Executive Board member Gertrude Tumpel-Gugerell told a conference celebrating Slovenia’s entry to the euro zone.

“Economic activity is now expanding robustly and employment is growing at a healthy pace.”

Fellow ECB policymaker Klaus Liebscher of Austria said the economic outlook for 2007 was “rather satisfactory,” in the euro area as well as worldwide, and Germany’s economy minister Michael Glos said growth in the zone’s biggest economy could be better than expected this year.

Inflation also could come in below the European Commission’s 2.1 percent forecast for 2007, thanks to falling oil prices, though the impact of Germany’s value-added tax rise has yet to be seen, Monetary Affairs Commissioner Joaquin Almunia said.

“If oil prices are maintained at present levels, or at least not as high as now forecast, and if the impact of VAT in Germany is not so big as we expected a few months ago, then I hope the final inflation in 2007 can be lower than the forecast in November,” Almunia told reporters at the Ljubljana event.

But ECB President Jean-Claude Trichet was not ready to herald the sharp drop in oil prices to around $53 per barrel, from above $78 six months ago, as a sign that 2007 inflation may fall below ECB staff’s projection of a 2.0 percent mid-point.

“We have a volatility in the price in oil, which is very big .... I will not embark on any prediction myself,” he said.

Trichet left in place market expectations for the ECB to raise rates again in March after they were kept on hold at 3.5 percent last week. Asked on this view, he said: “I will not, if you permit me, ship any message.”

Liebscher said he thought markets had understood Trichet well, citing oil and wages as price risks.

“For the euro-area economy, rates are still low,” Liebscher told reporters on the sidelines of the conference. “We are far off from saying ‘we can be complacent’.”

His colleague Guy Quaden of Belgium added that low rates are no barrier to euro zone growth, but right now policymakers are waiting to see the price impact of Germany’s VAT increase.

“It’s a piece of information we’ll wait for in the next weeks and months. And it will be important in the assessment of the prospects for inflation in Germany and in the euro zone,” Quaden told Market News International.

The prospect of higher euro-zone rates sat ill with Italian Prime Minister Romano Prodi. “Inflation is under control. I hope the situation ... doesn’t lead to an increase in interest rates,” he told reporters at the Slovenia event after data showed industrial output in Italy fell unexpectedly in November.

Soft factory data for the whole region that month pointed to a loss of growth momentum late last year and backed analysts’ view that the ECB is likely to wait until March before raising rates again, rather than act in February.

Euro zone industrial production rose 0.2 percent on the month in November for a year-on-year increase of 2.5 percent, less than the average forecast for a 0.8 percent monthly rise.

“Recently softer industrial production ... bolsters the case for the ECB to adopt a more cautious stance over tightening monetary policy further,” said Howard Archer, chief European economist at Global Insight.

“We expect the ECB to delay a further 25 basis point interest rate hike to 3.75 percent until March, and believe that further tightening after that is by no means a done deal.”

Growth in Germany hit a six-year peak in 2006 and Economy Minister Glos said in Stockholm he expected GDP growth of between 1.5 and 2.0 percent this year.

That is an improvement from the October prediction of 1.4 percent. A source in Berlin familiar with the government’s latest economic report, due later this month, said the 2007 forecast would be fixed at 1.7 percent for budget purposes.