Top ECB economist sees fewer risks to eurozone recovery

In the highly codified language that central bankers use, ECB chief economist Peter Praet told a financial conference in Brussels that the risks to the recovery are "closer to balance than... in some time." 

Top ECB economist sees fewer risks to eurozone recovery

World Bulletin / News Desk

The European Central Bank's chief economist appeared to offer a tiny hint Thursday that the bank might soon begin thinking about scaling back its easy money policies, by suggesting the economic risks in the single currency area were starting to fade.

Financial markets are on tenterhooks for even the tiniest indications from the ECB as to when it might start "tapering" or winding down a series of policy measures that have kept credit flowing in the eurozone economy during its long crisis.

Every word from ECB chief Mario Draghi and other bank officials is pored over and examined for every possible nuance.

But policymakers have tried to keep a lid on expectations for a possible exit from the ECB's bond-buying programme known as quantitative easing in June, after France's high-stakes presidential election.

Nevertheless, some board members have acknowledged that risks to the economic recovery in the 19-nation single currency area look less grave, removing one justification for maintaining central bank support.

Under the so-called "QE" programme, the ECB buys 60 billion euros ($66 billion) of government and corporate bonds per month and has set interest rates at unprecedented lows.

Its policies are designed to encourage banks to lend to businesses and households, driving growth in the real economy and shifting inflation towards the central bank target of close to, but below 2.0 percent.

"Our monetary policy works and the effects of our measures on the euro area economy are becoming increasingly visible," Praet said in an upbeat passage Thursday.

The eurozone has enjoyed 15 quarters of uninterrupted growth and a 0.5-percent quarter-on-quarter growth rate in the last three months of 2016 -- as well as the first quarter this year, according to preliminary data.

Nevertheless, while the recovery is driven by domestic demand and less vulnerable to outside shocks, "risks to the global economy over the medium term are stacked to the downside and weigh on euro area prospects," Praet warned.

He explicitly named the unpredictable US administration under Donald Trump, an avowed fan of protectionism, as well as risks from Britain's departure from the EU and "fragilities" in emerging markets like China.

Furthermore, the central bank's projections of inflation approaching the target in the coming years depend on it continuing its interventions, Praet said.

Inflation is unlikely to become self-sustaining until wages begin to grow in the eurozone, ECB economists believe.

But it remains difficult to predict when that will happen, as employers can presently hire from among still-high numbers of unemployed and those wishing to work longer hours -- rather than having to attract scarce labour with higher pay.

"Domestic wage pressures may therefore only materialise at a relatively late stage in the economic expansion," Praet said.

Güncelleme Tarihi: 04 Mayıs 2017, 16:08