ECB Officials Say Significant Support Needed Amid Soft Inflation

(Bloomberg) --

European Central Bank officials pressed the case for continued monetary-policy support as they signaled the euro-area economic slowdown is weighing on inflation.

In a foreword to the ECB’s annual report, President Mario Draghi warned of a “persistence of uncertainties” and said there’s a continued need for stimulus to boost inflation.

His vice president, Luis de Guindos echoed that, saying “weaker growth momentum will leave its mark on domestic price pressures, slowing the adjustment of inflation toward our aim.”

“Significant monetary policy accommodation therefore remains essential,” he said during the presentation of the report in Brussels.

Their comments came hours after data showed euro-area core inflation slowed to the weakest pace in almost a year. There was also disappointing news from industry. Germany’s factory slump deepened in March, underscoring Europe’s position as the weak link in the global economy.

Guindos said the slowdown is having an impact on core inflation, but policy makers are convinced that an expected rebound in economic activity in the second half of the year should help price pressures.

Yet he cautioned that Britain’s exit from the European Union without a deal could reduce the chance of that.

“A no-deal that has not been fully priced in by markets could be a sort of amplifier of the downward trends behind the deceleration of the European economy,” Guindos told lawmakers.

In the largely backward-looking account of 2018, the ECB discussed economic activity, policy priorities and the state of the region’s banking sector. It doesn’t mention topics such as a new long-term lending program or measures to mitigate the impact of negative interest rates on banks that have occupied policy makers more recently.

Instead, Draghi cited geopolitical factors and protectionism, and said the “conduct of monetary policy in the euro area will continue to require patience, prudence and persistence.”

Guindos said monetary policy was not “all mighty” and euro-area member states that have fiscal space should spend more to foster sustainable growth.

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