Draghi Sticks to Cautious Optimism About Euro-Area Bounceback

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Mario Draghi struck a cautiously optimistic note about the prospects for a rebound in the euro-area economy this year, saying some of the factors that have held back growth appear to be waning.

The 19-nation economy has shown “remarkable resilience” faced with headwinds such as Brexit, trade protectionism and political uncertainties in some of its members, the European Central Bank president said on Saturday. Still, the balance of risks remains tilted to the downside and the ECB needs to maintain its accommodative policy, he said.

Asked whether a recovery in the second half is still likely, Draghi said at a press conference during the International Monetary Fund meetings in Washington that “it’s a possible scenario, subject to risks.”

His remarks echo earlier comments from some of his Governing Council colleagues including Finnish central banker Olli Rehn, who told Bloomberg in an interview that the latest economic indicators confirm the ECB’s outlook for a rebound this year.

The assessment is important because policy makers have pinned the design of new long-term loans -- likely to be announced in June -- and the potential need for measures mitigating the impact of negative interest rates to economic prospects in the 19-nation economy.

Economic Stabilization

Chief economist Peter Praet said on Friday there are good reasons to believe the situation is stabilizing after a significant economic slowdown forced the ECB in March to announce fresh support and delay rate increases beyond this year.

Draghi said markets have understood the ECB’s reaction function, with financial conditions “where we want them to be.” Investors are currently expecting the first interest-rate increase well into 2020.

“This should help conditions to create convergence for inflation to our medium-term objective,” Draghi said.

While market-based inflation expectation have slipped recently, they aren’t “being deanchored,” and the ECB is fully committed to reaching its inflation goal of just under 2 percent “without undue delay,” he said. The central bank is “fully equipped to achieve its mandate,” he said.

Turning to his native Italy, Draghi said “employment and growth are the priorities now and Italy knows well what to do to achieve these objectives.”

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