FRANKFURT • The euro-area economy isn’t headed for a recession, even though softening momentum underscores the need for European Central Bank (ECB) stimulus, according to president Mario Draghi.
“The question we should ask is: Is this a sag or heading toward a recession?” Draghi told members of the European Parliament in Strasbourg on Tuesday. “The answer we give is: No, it’s a slowdown, which is not headed toward a recession. But it could be longer than expected.”
The ECB president’s remarks followed a spate of disappointing data from across the 19-nation euro-area in recent weeks, casting doubt over the economic outlook and leading investors to question whether the central bank will be able to start raising interest rates this year. Officials hold their next policy meeting on Jan 24, the first since ending asset purchases in December.
“We still see a situation where consumption is still expanding, relatively strong, investment still expanding, supported by our monetary policy, export growth is still good and the labour market keeps on being very strong,” Draghi said. “All this is happening at lower and lower growth rates.”
“As yet, there’s no evidence of a material rebound in either the hard data or the business surveys, and confidence has faded more generally. A persistent slowdown to 0.2% a quarter would be a major source of concern to the ECB and could prompt a lengthy delay to higher interest rates,” said Jamie Murray of Bloomberg Economics.
Draghi spoke after a report showed the German economy expanded in 2018 at the weakest annual pace in five years, only narrowly dodging a recession. He confirmed that the ECB plans to keep interest rates at current levels and reinvest maturing debt for some time.
“A significant amount of monetary- policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term,” he said.
While policymakers have acknowledged the weakening momentum and increased risks to growth, they have cautioned against drawing hasty conclusions. French Governing Council member Francois Villeroy de Galhau has said the ECB should wait until spring before reassessing its policy stance. Officials will receive updated economic projections in March.
“For the time to come, it’s going to be a continuing uncertainty that changes nature,” Draghi said. “This has a cost — the cost is lower confidence.
Lower business confidence, lower consumer confidence. That’s why we are now assessing the situation.”