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ECB chief highlights risks to economy

02 February 2016, 11:04 CET
ECB chief highlights risks to economy

Mario Draghi - Photo © European Union 2016 - Source EP

(FRANKFURT) - The European Central Bank is prepared to play its part in helping the economic recovery, president Mario Draghi said on Monday, but warned of risks to growth.

"Growth prospects are slowly improving in advanced economies, but the outlook in emerging markets is more subdued. Overall, growth is low by historical standards," Draghi told lawmakers in the European Parliament in a debate broadcast live online.

"The ECB is willing to contribute its share to ensuring that the recovery remains firmly on track," he said.

But there were four-fold risks that could undermine the economy, Draghi warned.

These were the global economic environment, the situation of the financial system, economic policies of eurozone member states and political uncertainty surrounding the "European project" -- alluding to a British referendum on whether to stay in or exit the European Union which is expected to be held in June.

"A solution that would anchor the United Kingdom firmly within the EU while allowing the euro area to integrate further would boost confidence," he said.

The ECB has rolled out a range of different policy measures to help get the eurozone economy back on its feet, most recently a controversial programme of bond purchases known as quantitative easing or QE.

Draghi insisted the policies were working.

"Without these measures, the euro area would have been in outright deflation last year and prices would have fallen at an even quicker pace this year. Growth would have been significantly lower," he said.

However, "since our meeting in early December, conditions have once more changed," Draghi warned.

"Downside risks have increased again amid heightened uncertainty about emerging market economies' growth prospects, volatility in financial and commodity markets, and geopolitical risks," he said.

"Inflation dynamics are also tangibly weaker than we expected in December," he continued.

"Therefore, at our last meeting in January we judged that it will be necessary to review and possibly reconsider our monetary policy stance at our next monetary policy meeting in early March, when the new staff macroeconomic projections become available."

At its meeting in December, the ECB cut its key "deposit" rate by 0.10 percentage point to minus 0.30 percent and extended the length of its QE programme by six months to March 2017.

But those decisions disappointed financial market players at the time, as they had expected much more decisive action.

So, at the ECB's first policy meeting of this year in January, Draghi sought to assuage such disappointment by promising to revisit the level of euro area interest rates and other stimulus measures in March.


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