Mario Draghi – Photo © European Union 2016 – Source EP
(BRUSSELS) – The eurozone economy has been resilient to global and political uncertainty, particularly to the UK’s Brexit vote, European Central Bank chief Mario Draghi told Euro-MPs Monday, but risks to the economic outlook remain.
The ECB’s president told the European Parliament’s Economic and Monetary Affairs Committee that the recovery in the eurozone is expected to continue at a moderate and steady pace, but slower than envisaged in June due to a lower foreign demand outlook.
Real GDP growth is now forecast at 1.7% for 2016 and 1.6% for 2017 and 2018. Inflation is forecast at 0.2% for 2016 and 1.2% for 2017, and might rise to 1.6% in 2018, he said.
On the UK’s referendum, Mr Draghi said that any initial impact of the outcome of the UK referendum had been contained, and the strong financial market reactions, such as equity price falls, have largely reversed.
But he warned that the effects on the economic outlook “depend on the timing, development and final outcome of the upcoming negotiations”.
Mr Draghi told MEPs that the ECB’s policy measures were filtering through to the real economy. He pointed to better borrowing conditions for households and firms – small firms as well as bigger ones – and stronger credit creation.
He added that the fragmentation of the financial markets had declined substantially across the euro area since 2012. Furthermore, the credit easing components of the Bank’s policies, “provide effective support to the cyclical recovery and the upward path to inflation.”
Addressing several MEPs’ concerns about the low interest rates on savings, Mr Draghi said these “are a symptom of the underlying economic situation”. He said that monetary policy cannot determine the sustainable levels of real interest rates in the long run, as these in turn depend on long-term growth prospects. “This means that other policy actors need to do their part, pursuing fiscal and structural policies”.
He repeated that the ECB use all the instruments available in its mandate to secure a return to a close to 2% inflation over the medium term.
