Draghi Winds Down ECB Tenure With Gloomy Take on Economy
Mario Draghi offered a gloomy assessment of the euro-area economy in his last press conference as European Central Bank president, just weeks after he unleashed the most controversial round of stimulus in his tenure.
Draghi said that “weaker growth momentum” is delaying the pass-through of stronger wage growth to inflation, and indicated that the labor market has lost some strength. He dropped a reference to “robust” employment growth, and said risks to the outlook are “on the downside,” a change from previous language saying it was “tilted” that way.
In what the ECB chief termed a unanimous decision, policy makers kept monetary stimulus unchanged on Thursday, six weeks after cutting interest rates and restarting bond purchases. A slew of both current and former rate setters, including Germany’s Jens Weidmann and Austria’s Robert Holzmann, have spoken out against Draghi’s final monetary push in September.
The euro strengthened against the dollar after the decision, and was up 0.1% at 1.1142 at 3:20 p.m. in Frankfurt.
With Germany probably in recession and data showing weakness in the manufacturing is spreading to the labor market, “everything that’s happened since our monetary policy decisions has shown abundantly that the Governing Council’s determination to act in a substantive manner was justified,” Draghi said.
After eight years in charge, the Italian is departing at a time of slower economic growth and a depleted ECB monetary arsenal. Germany, the regional powerhouse, is hamstrung by problems in the automobile industry, and the trade war is sapping confidence and investment.
Draghi changed the course of the region’s debt crisis with his famous phrase “whatever it takes,” but hasn’t succeeded in meeting the institution’s inflation goal. Price growth is less than 1%, compared with the aim of just below 2%.
At the press conference, Draghi said there’s a need for a “highly accommodative stance of monetary policy for a prolonged period.”
“Measures of underlying inflation remained generally muted and indicators of inflation expectations stand at low levels,” he said.
The deposit rate is at a record-low minus 0.5%, with a pledge to cut again if needed, and won’t rise until inflation “robustly” converges with the goal. Quantitative easing will start next month with asset purchases of 20 billion euros ($22 billion) a month, and won’t end until “shortly” before the first rate hike.
Economists don’t expect the ECB to lift rates before late 2022, meaning incoming ECB chief Christine Lagarde will inherit the expansionist stance -- as well as the divisions among Governing Council members over its enactment.
Asked how he’d assess his tenure, Draghi replied he felt he was someone who’d tried “to comply with the mandate in the best possible way.”
©2019 Bloomberg L.P.