Mario Draghi: ECB press conference - introductory statement
Introductory statement by Mr Mario Draghi, President of the European Central Bank, and
Mr Vítor Constâncio, Vice-President of the European Central Bank, Frankfurt am Main,
1 August 2013.
* * *
Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our
press conference. 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 has confirmed 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, in particular, credit dynamics
remain subdued. Inflation expectations for the euro area continue to be firmly anchored in
line with our aim of maintaining inflation rates below, but close to, 2% over the medium term.
At the same time, recent confidence indicators based on survey data have shown some
further improvement from low levels and tentatively confirm the expectation of a stabilisation
in economic activity. Our monetary policy stance continues to be geared towards maintaining
the degree of monetary accommodation warranted by the outlook for price stability and
promoting stable money market conditions. It thereby provides support to a gradual recovery
in economic activity in the remaining part of the year and in 2014. Looking ahead, our
monetary policy stance will remain accommodative for as long as necessary. The Governing
Council confirms that it expects the key ECB interest rates to remain at present or lower
levels for an extended period of time. This expectation continues to be based on an
unchanged overall subdued outlook for inflation extending into the medium term, given the
broad-based weakness in the economy and subdued monetary dynamics. In the period
ahead, we will monitor all incoming information on economic and monetary developments
and assess any impact on the outlook for price stability.
Let me now explain our assessment in greater detail, starting with the economic analysis.
Following a six-quarter economic contraction in the euro area, recent confidence indicators
based on survey data have shown some further improvement from low levels and tentatively
confirm the expectation of a stabilisation in economic activity at low levels. At the same time,
labour market conditions remain weak. Looking ahead to the remainder of the year and to
2014, euro area export growth should benefit from a gradual recovery in global demand,
while domestic demand should be supported by the accommodative monetary policy stance
as well as the recent gains in real income owing to generally lower inflation. Furthermore, the
overall improvements in financial markets seen since last summer appear to be gradually
working their way through to the real economy, as should the progress made in fiscal
consolidation. This being said, the remaining necessary balance sheet adjustments in the
public and private sectors will continue to weigh on economic activity. Overall, euro area
economic activity should stabilise and recover at a slow pace.
The risks surrounding the economic outlook for the euro area continue to be on the
downside. Recent developments in global money and financial market conditions and related
uncertainties may have the potential to negatively affect economic conditions. Other
downside risks include the possibility of weaker than expected domestic and global demand
and slow or insufficient implementation of structural reforms in euro area countries.
According to Eurostat's flash estimate, euro area annual HICP inflation was 1.6% in July
2013, unchanged from June. Annual inflation rates are currently expected to temporarily fall
over the coming months, owing particularly to base effects relating to energy price
developments twelve months earlier. Taking the appropriate medium-term perspective,
underlying price pressures are expected to remain subdued, reflecting the broad-based
weakness in aggregate demand and the modest pace of the recovery. Medium to long-term
inflation expectations continue to be firmly anchored in line with price stability.
The risks to the outlook for price developments are expected to be still broadly balanced over
the medium term, with upside risks relating to stronger than expected increases in
administered prices and indirect taxes, as well as higher commodity prices, and downside
risks stemming from weaker than expected economic activity.
Turning to the monetary analysis, underlying money and, in particular, credit growth
remained subdued in June. Annual growth in broad money (M3) decreased in June to 2.3%,
from 2.9% in May. Moreover, annual growth in M1 decreased to 7.5% in June, from 8.4% in
May. The annual rate of change of loans to the private sector weakened further. While the
annual growth rate of loans to households (adjusted for loan sales and securitisation)
remained at 0.3% in June, broadly unchanged since the turn of the year, the annual rate of
change of loans to non-financial corporations (adjusted for loan sales and securitisation) was
-2.3% in June, after -2.1% in May. Weak loan dynamics continue to reflect primarily the
current stage of the business cycle, heightened credit risk and the ongoing adjustment of
financial and non-financial sector balance sheets. The bank lending survey for the second
quarter of 2013 confirms that borrowers' risk and macroeconomic uncertainty remained the
main factors restraining banks' lending policies. At the same time, the degree of net
tightening of credit standards for loans to non-financial corporations remained unchanged in
the second quarter of 2013, compared with the first quarter, and declined for loans to
households.
Since the summer of 2012 substantial progress has been made in improving the funding
situation of banks and, in particular, in strengthening the domestic deposit base in a number
of stressed countries. 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. Further decisive steps for establishing a Banking Union will help to accomplish this
objective.
To sum up, the economic analysis indicates that price developments should remain in line
with price stability over the medium term. A cross-check with the signals from the monetary
analysis confirms this picture.
As regards in order to bring debt ratios back on a downward path, euro area
fiscal policies,
countries should not unravel their efforts to reduce government budget deficits. The
emphasis should be on growth-friendly fiscal strategies which have a medium-term
perspective and combine improving the quality and efficiency of public services with
minimising distortionary effects of taxation. To reinforce the overall impact of such a strategy,
Member States must step up the implementation of the necessary structural reforms so as
to foster competitiveness, growth and job creation. Removing rigidities in the labour market,
lowering the administrative burden and strengthening competition in product markets will
particularly support small and medium-sized enterprises. These structural reform measures
are essential to bring down the currently high level of unemployment, in particular among the
younger citizens of the euro area.
We are now at your disposal for questions.