Draghi dampens hopes of rapid revival of eurozone economy

European Central Bank chief Mario Draghi on Thursday dampened hopes of a rapid revival in the eurozone economy warning that growth could slow in the coming months.

The ECB still stands ready to act again to ensure the recovery remained on track, he said.

Many analysts thought that the 19-member currency bloc might have begun to gain more momentum after it grew by a solid 0.5 per cent in the first quarter following a long struggle to emerge from the euro debt crisis.

Speaking at a press conference in Vienna where the Frankfurt-based ECB held one of its regular out-of-town meetings, Draghi said: "The economic recovery is gradually proceeding."

But he said growth in the three months to the end of June could be slower than in the first quarter.

The second-quarter rate "will still be a good figure," he said, with the ECB's 1.74-trillion-euro (1.94-trillion-dollar) package of monetary stimulus measures along with domestic demand helping to offset subdued demand in major emerging markets.

"As regards the macro-economic outlook, the ECB still sounds extremely cautious," said ING Bank chief economist Carsten Brzeski.

"The strong growth performance in the first quarter was taken as a nice windfall but definitely not for granted," said Brzeski.

Draghi repeated his message from earlier press conferences insisting that the ECB stood ready to use all the instruments at its disposal.

"It is quite clear we will not hesitate to act," Draghi said, to ensure that the eurozone economy remained on a growth path and that consumer prices would climb back to the bank's annual inflation target, which is just shy of 2 per cent.

The ECB chief also warned of the series of global risks facing the eurozone, notably this month's referendum in Britain on European Union membership.

Draghi said the ECB wanted Britain remain an EU member but that it "was ready for any outcome.”

The ECB also expects inflation to pick up in the months ahead partly on the back of a spike in oil prices after it remained below zero for the second consecutive month in May.

However, the bank only slightly revised up its inflation and growth forecasts for the eurozone for this year and left most of the forecasts unchanged in its new economic projections unveiled by Draghi in Vienna.

Inflation is projected to average 0.2 per cent this year – marginally higher than the bank's 0.1 per cent forecast made in March.

Consumer prices should then climb to 1.3 per cent in 2017 and 1.6 per cent in 2018, which were the same as the March projections.

The currency bloc should expand by 1.6 per cent this year before accelerating to 1.7 per cent in both 2017 and 2018. The 2016 forecast was higher than the 1.4 per cent forecast in March.

However, the bank said it had expected a 1.8-per-cent growth rate in 2018.

For the moment, however, Draghi said the ECB had to focus on implementing the comprehensive set of measures it announced in both December and March.

The ECB also announced on Thursday that it will begin purchasing investment-grade corporate bonds from June 8 as part of the package of measures.

The corporate bond purchases will be the first in ECB history. Until now the Frankfurt-based asset-buying plans have focused on government bonds.

Last update: Fri, 24/06/2016 - 08:49
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