The recovery in the euro area is expected to continue at a moderate and steady pace, but slower than envisaged in June due to a lower foreign demand outlook, European Central Bank President Mario Draghi told Economic and Monetary Affairs Committee members on Monday. On the positive side, he said that the euro area economy showed resilience to global and political uncertainty, notably following the UK referendum outcome.
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, Mr Draghi said.
UK referendum: Eurozone showed resilience but still subject to downward risks
“The initial impact of the outcome of the UK referendum has been contained and the strong financial market reactions, such as equity price falls, have largely reversed”, said Mr Draghi, looking back at the first days after the UK referendum. But he also warned that the effects on the economic outlook “depend on the timing, development and final outcome of the upcoming negotiations”.
ECB policies filter through to real economy
Mr Draghi said the ECB’s policy measures are 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. Also, the fragmentation of the financial markets has declined substantially across the euro area since 2012, he said. Furthermore, the credit easing components of the Bank’s policies, “provide effective support to the cyclical recovery and the upward path to inflation”, he added.
Low interest rates
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.
Video recording of the statement (click on the name to see the full intervention)
Opening remarks by Roberto GUALTIERI, committee chair
Mario DRAGHI, ECB President (part 1)
Mario DRAGHI, ECB President (part 2)
Burkhard BALZ (EPP, DE)
Pervenche BERÈS (S&D, FR)
Sander LOONES (ECR, BE)
Sylvie GOULARD (ALDE, FR)
Matt CARTHY (GUE/NGL, IE)
Ernest URTASUN (Greens/ALE, ES)
Marco VALLI (EFDD, IT)
Gerolf ANNEMANS (ENF, BE)
In the chair: Roberto Gualtieri (S&D, IT)