Mario Draghi, President of the ECB,
Frankfurt am Main, 6 February 2014
Ladies and gentlemen, the Vice-President and I are very pleased to
welcome you to our press conference. We will now report on the outcome of
today’s meeting of the Governing Council.
Based on our regular economic and monetary analyses, we decided to
keep the key ECB interest rates unchanged. Incoming
information confirms that the moderate recovery of the euro area economy is
proceeding in line with our previous assessment. At the same time, underlying
price pressures in the euro area remain weak and monetary and credit dynamics
are subdued. Inflation expectations for the euro area over the medium to long
term continue to be firmly anchored in line with our aim of maintaining
inflation rates below, but close to, 2%. As stated previously, we are now
experiencing a prolonged period of low inflation, which will be followed by a
gradual upward movement towards inflation rates below, but close to, 2% later
on. Regarding the medium-term outlook for prices and growth, further
information and analysis will become available in early March. Recent evidence
fully confirms our decision to maintain an accommodative stance of monetary
policy for as long as necessary, which will assist the gradual economic
recovery in the euro area. We firmly reiterate our forward guidance. We
continue to expect the key ECB interest rates to remain at present or lower
levels for an extended period of time. This expectation is based on an overall
subdued outlook for inflation extending into the medium term, given the
broad-based weakness of the economy and subdued monetary dynamics. With regard
to recent money market volatility and its potential impact on our monetary
policy stance, we are monitoring developments closely and are ready to consider
all available instruments. Overall, we remain firmly determined to maintain the
high degree of monetary accommodation and to take further decisive action if
required.
Let me now explain our assessment in greater detail, starting with
the economic analysis. Following two quarters of positive real GDP
growth, developments in recent data and surveys overall suggest that the
moderate recovery continued in the last quarter of 2013. Looking ahead, our
previous assessment of economic growth has been confirmed. Output in the euro
area is expected to recover at a slow pace. In particular, some improvement in
domestic demand should materialise, supported by the accommodative monetary
policy stance, improving financing conditions and the progress made in fiscal
consolidation and structural reforms. In addition, real incomes are supported
by lower energy price inflation. Economic activity is also expected to benefit
from a gradual strengthening of demand for euro area exports. At the same time,
although unemployment in the euro area is stabilising, it remains high, and the
necessary balance sheet adjustments in the public and the private sector will
continue to weigh on the pace of the economic recovery.
The risks surrounding the economic outlook for the euro area
continue to be on the downside. Developments in global money and financial
market conditions and related uncertainties, notably in emerging market
economies, may have the potential to negatively affect economic conditions.
Other downside risks include weaker than expected domestic demand and export
growth and slow or insufficient implementation of structural reforms in euro
area countries.
According to Eurostat’s flash estimate, euro area annual HICP
inflation was 0.7% in January 2014, after 0.8% in December. This decline was
mainly due to energy price developments. At the same time, the inflation rate
in January 2014 was lower than generally expected . On the
basis of current information and prevailing futures prices for energy, annual
HICP inflation rates are expected to remain at around current levels in the coming
months. Over the medium term, underlying price pressures in the euro area are
expected to remain subdued. Inflation expectations for the euro area over the
medium to long term continue to be firmly anchored in line with our aim of
maintaining inflation rates below, but close to, 2%.
Both upside and downside risks to the outlook for price
developments remain limited, and they continue to be broadly balanced over the
medium term.
Turning to the monetary analysis, data for December
2013 confirm the assessment of subdued underlying growth in broad money (M3)
and credit. Annual growth in M3 moderated to 1.0% in December, from 1.5% in
November. Deposit outflows in December mirrored the strong sales of government
and private sector securities by euro area MFIs, which, in part, could be
related to adjustments by banks in anticipation of the ECB’s comprehensive
assessment of banks’ balance sheets. These developments also affected annual
growth in M1, which moderated to 5.8% in December but remained strong. As in
previous months, the main factor supporting annual M3 growth was an increase in
the MFI net external asset position, which continued to reflect the increased
interest of international investors in euro area assets. The annual rate of
change of loans to the private sector continued to contract. The annual growth
rate of loans to households (adjusted for loan sales and securitisation) stood
at 0.3% in December, broadly unchanged since the beginning of 2013. The annual
rate of change of loans to non-financial corporations (adjusted for loan sales
and securitisation) was -2.9% in December, after -3.1% in November. The January
2014 bank lending survey provides indications of some further stabilisation in
credit conditions for firms and households and a smaller net decline in loan
demand by enterprises. Overall, weak loan dynamics for non-financial
corporations continue to reflect their lagged relationship with the business
cycle, credit risk and the ongoing adjustment of financial and non-financial
sector balance sheets.
Since the summer of 2012 substantial progress has been made in
improving the funding situation of banks. In order to ensure an adequate
transmission of monetary policy to the financing conditions in euro area
countries, it is essential that the fragmentation of euro area credit markets
declines further and that the resilience of banks is strengthened where needed.
This is the objective of the ECB’s comprehensive assessment, while the timely
implementation of additional steps to establish a banking union will further
help to restore confidence in the financial system.
To sum up, the economic analysis confirms our expectation of a
prolonged period of low inflation, to be followed by a gradual upward movement
towards inflation rates below, but close to, 2% later on. A cross-check with
the signals from the monetary analysis confirms the picture of subdued
underlying price pressures in the euro area over the medium term.
As regards fiscal policies, euro area countries should
not unravel past consolidation efforts and should put high government debt on a
downward trajectory over the medium term. Fiscal strategies should be in line
with the Stability and Growth Pact and should ensure a growth-friendly
composition of consolidation which combines improving the quality and
efficiency of public services with minimising distortionary effects of
taxation. When accompanied by the decisive implementation of structural
reforms, these strategies will further support the still fragile economic
recovery. Governments must therefore continue with product and labour market
reforms. These reforms will help to enhance the euro area’s growth potential
and reduce the high unemployment rates in many countries.
We are now at your disposal for questions.
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