ECB: Eurozone Growth Risks ‘Moved To The Downside’ – Draghi

by Ike Obudulu Posted on January 24th, 2019

Risks to the euro area growth are now tilted to the downside, thanks to persistent uncertainties such as protectionism, European Central Bank President Mario Draghi acknowledged on Thursday, after policymakers left the key interest rates and forward guidance unchanged.

“The risks surrounding the euro area growth outlook have moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility,” Draghi said in the introductory statement to his post-decision press conference in Frankfurt.

Draghi blamed a slowdown in external demand, due to both country and sector-specific factors, for the weaker-than-expected incoming data.

“While the impact of some of these factors is expected to fade, the near-term growth momentum is likely to be weaker than previously anticipated,” he said.

Earlier on Thursday, the Governing Council, led by Mario Draghi, left the key interest rates unchanged. The main refi rate is currently at a record low zero percent and the deposit rate at -0.40 percent. The marginal lending facility rate is at 0.25 percent.

Eurozone interest rates were raised last in July 2011 by 25 basis points.

While the bank’s forward guidance now suggests that the first hike would come late this year, some economists now expect the bank to raise interest rates only in 2020 due to the weaker growth and inflation outlook, and the persistent uncertainties linked to global trade and politics.

That would make Draghi, whose term ends in October, the only ECB President thus far who did not raise interest rates during his tenure.

The central bank expects the ultra-low interest rates, strong labor market, rising wages, lower energy prices and somewhat slower expansion in the global economy to underpin the Eurozone economy.

Responding to questions from reporters, Draghi said policymakers did not discuss the implications of downside risks on financial stability in the latest session, but were focused only on assessment.

“We were unanimous about acknowledging the weaker momentum and changing the balance of risk for growth,” the ECB Chief said.

“There was unanimity in the Governing Council that the likelihood of a recession is low,” he added.

Draghi also acknowledged that the Governing Council again discussed the re-launch of cheaper longer-term loans under the earlier scheme called Targeted Long-Term Refinancing Operations, or TLTRO. However, no decision was made regarding that, he said.

“LTROs and TLTROs have been very useful and very effective in restoring transmission of monetary policy in euro area,” Draghi said.

In December, the bank ended its four-year long massive asset purchase scheme of EUR 2.6 trillion. However, policymakers say the euro area economy still needs to be supported with “an ample degree” of monetary stimulus.

“We have a long list of instruments and we stand ready to use them, adjust them according to the contingency that is produced,” Draghi added.

Earlier on Thursday, survey data from IHS Markit showed that Eurozone private sector expanded at the weakest pace in five-and-a-half years at the start of the year, led by slower pace of growth in both manufacturing and services. The weakness of the auto sector remained a key area of concern, among others.

Headline inflation eased to an eight-month low of 1.6 percent in December, while core price growth held steady at 1 percent.

Draghi said the underlying inflation is now remaining subdued, but is expected to accelerate over the medium term.

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