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Mario Draghi, European Central Bank president, has struck a distinctly gloomy note on eurozone growth prospects, dropping previous references to a gradual recovery this year.
Speaking in the European Parliament, Mr Draghi said recent signs of weakness shown in survey data highlighted “prevailing uncertainty” about the outlook for Europe’s 17-country monetary union. But he did not signal a shift in ECB interest rate strategy, which he said remained “accommodative” – or supportive of growth.
His comments followed the political backlash this week against fiscal austerity measures taken by governments across the eurozone and purchasing managers’ indices that indicated the eurozone had fallen deeper into recession.
Earlier this month, Mr Draghi had said he expected the eurozone economy “to recover gradually in the course of the year” – but the phrase was not included in his prepared text on Wednesday.
Nevertheless, Mr Draghi still expected ECB action to support eurozone banks to eventually stimulate growth. In December and February, the ECB injected more than €1tn in three-year loans into the eurozone banking system.
Signs that the ECB’s strategy was bearing fruit came in the ECB’s latest bank lending survey, released as he spoke. It showed a sharp drop in the number of banks tightening credit standards applied to consumers and businesses.
The ECB said: “This drop was much more pronounced than anticipated by survey participants at the time of the previous survey round and mainly reflected milder pressures from cost of funds and balance sheet constraints, in particular as regards banks’ access to funding and their liquidity position.”
The ECB president described the results as “encouraging” and indicated the problem of credit being refused had declined considerably. “We are confident that central bank liquidity has come very close to the real economy,” Mr Draghi said.
The ECB president put the stress on governments taking action to rebuild confidence in the eurozone by continuing fiscal and structural reforms. He added: “I am convinced that we need to actively step up our reflections about the longer-term vision for Europe as we have done in the past at other defining moments in the history of our union.”
He played down the prospects of the ECB reactivating its government bond-purchasing programme. The central bank had to stick to its “primary mandate” of combating inflation and not breach the European Union ban on “monetary financing” – central bank funding of governments. “The credibility of the ECB is one of the few things left,” he said.