Mario Draghi: ECB press conference - introductory statement
Introductory statement by Mr Mario Draghi, President of the European Central Bank,
Frankfurt am Main, 9 January 2014.
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Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our
press conference. Let me wish you all a Happy New Year. I would also like to take this
opportunity to welcome Latvia as the eighteenth country to adopt the euro as its currency.
Accordingly, Mr Rimšēvičs, the Governor of Latvijas Banka, became a member of the
Governing Council on 1 January 2014. We will now report on the outcome of today's meeting
of the Governing Council.
Based on our regular economic and monetary analyses, we decided to keep the key ECB
interest rates unchanged. Incoming information and analysis have continued to confirm our
previous assessment. Underlying price pressures in the euro area are expected to remain
subdued over the medium term. In keeping with this picture, monetary and credit dynamics
remain subdued. At the same time, inflation expectations for the euro area over the medium
to long term are firmly anchored in line with our aim of maintaining inflation rates below, but
close to, 2%. Such a constellation continues to suggest that we may experience a prolonged
period of low inflation, to be followed by a gradual upward movement towards inflation rates
below, but close to, 2% later on. Against this background, the Governing Council strongly
emphasises that it will maintain an accommodative stance of monetary policy for as long as
necessary, which will assist the gradual economic recovery in the euro area. Accordingly, we
firmly reiterate our forward guidance that we continue to expect the key ECB interest rates to
remain at present or lower levels for an extended period of time. As previously stated, this
expectation is based on an overall subdued outlook for inflation extending into the medium
term, given the broad-based weakness of the economy and subdued monetary dynamics.
With regard to money market conditions and their potential impact on our monetary policy
stance, we are monitoring developments closely and are ready to consider all available
instruments. Overall, we remain determined to maintain the high degree of monetary
accommodation and to take further decisive action if required.
Let me now explain our assessment in greater detail, starting with the economic analysis.
Real GDP in the euro area rose by 0.1%, quarter on quarter, in the third quarter of 2013,
following an increase of 0.3% in the second quarter. While developments in industrial
production data for October point to a weak start to the fourth quarter, survey-based
confidence indicators up to December have improved further from low levels, overall
indicating a continuation of the gradual recovery in economic activity. Looking at 2014 and
2015, output is expected to recover at a slow pace, in particular owing to some improvement
in domestic demand supported by the accommodative monetary policy stance. Euro area
economic activity should, in addition, benefit from a gradual strengthening of demand for
exports. Furthermore, the overall improvements in financial markets seen since the summer
of 2012 appear to be working their way through to the real economy, as should the progress
made in fiscal consolidation. In addition, real incomes have benefited recently from lower
energy price inflation. At the same time, unemployment in the euro area remains high, and
the necessary balance sheet adjustments in the public and the private sector will continue to
weigh on economic activity.
The risks surrounding the economic outlook for the euro area continue to be on the
downside. Developments in global money and financial market conditions and related
uncertainties may have the potential to negatively affect economic conditions. Other
downside risks include higher commodity prices, weaker than expected domestic demand
and export growth, and slow or insufficient implementation of structural reforms in euro area
countries.
According to Eurostat's flash estimate, euro area annual HICP inflation was 0.8% in
December 2013, compared with 0.9% in November. This outcome was broadly as expected
and reflected lower services price inflation. On the basis of prevailing futures prices for
energy, annual inflation rates are expected to remain at around current levels in the coming
months. Over the medium term, underlying price pressures in the euro area are expected to
remain subdued. At the same time, inflation expectations for the euro area over the medium
to long term continue to be firmly anchored in line with our aim of maintaining inflation rates
below, but close to, 2%.
The risks to the outlook for price developments continue to be seen as broadly balanced over
the medium term, with upside risks relating to higher commodity prices and stronger than
expected increases in administered prices and indirect taxes, and downside risks stemming
from weaker than expected economic activity.
Turning to the monetary analysis, data for November support the assessment of continued
subdued underlying growth in broad money (M3) and credit. Annual growth in M3 was
broadly unchanged at 1.5% in November, after 1.4% in October, following two consecutive
declines in September and August. Annual growth in M1 remained strong at 6.5%, reflecting
a preference for liquidity, although it was below the peak of 8.7% observed in April 2013. As
in previous months, the main factor supporting annual M3 growth was an increase in the MFI
net external asset position, which continued to reflect the increased interest of international
investors in euro area assets. The annual rate of change of loans to the private sector
remained weak. The annual growth rate of loans to households (adjusted for loan sales and
securitisation) stood at 0.3% in November, broadly unchanged since the beginning of 2013.
The annual rate of change of loans to non-financial corporations (adjusted for loan sales and
securitisation) was -3.1% in November, following -3.0% in October. Overall, weak loan
dynamics for non-financial corporations continue to reflect their lagged relationship with the
business cycle, credit risk and the ongoing adjustment of financial and non-financial sector
balance sheets.
Since the summer of 2012 substantial progress has been made in improving the funding
situation of banks. In order to ensure an adequate transmission of monetary policy to the
financing conditions in euro area countries, it is essential that the fragmentation of euro area
credit markets declines further and that the resilience of banks is strengthened where
needed. The forthcoming comprehensive assessment by the ECB will further support this
confidence-building process. It will enhance the quality of information available on the
condition of banks and result in the identification and implementation of necessary corrective
actions. A timely implementation of further steps to establish a banking union will help to
restore confidence in the financial system.
To sum up, the economic analysis indicates that we may experience a prolonged period of
low inflation, to be followed by a gradual upward movement towards inflation rates below, but
close to, 2% later on. A cross-check with the signals from the monetary analysis confirms
this picture.
As regards fiscal policies, it is important not to unravel past efforts but to sustain fiscal
consolidation over the medium term. Fiscal strategies should be in line with the fiscal
compact and should ensure a growth-friendly composition of consolidation which combines
improving the quality and efficiency of public services with minimising distortionary effects of
taxation. When accompanied by the decisive implementation of structural reforms, this will
further support the gradual economic recovery in the euro area and have a positive impact
on public finances. Reforms in product and labour markets and a rigorous enactment of
Single Market policies warrant particular focus to improve the outlook for economic growth
and to foster job creation in an environment of high unemployment.
We are now at your disposal for questions.