Mario Draghi: ECB press conference - introductory statement
Introductory statement by Mr Mario Draghi, President of the European Central Bank,
Frankfurt am Main, 5 December 2013.
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Ladies and gentlemen, I am very pleased to welcome you to our press conference. I will now
report on the outcome of today's meeting of the Governing Council, which was also attended
by the Commission Vice-President, Mr Rehn.
Based on our regular economic and monetary analyses, we decided to keep the key ECB
interest rates unchanged. Incoming information and analysis have confirmed our
assessment and monetary policy decisions of last month. 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 continue to be firmly anchored
in line with our aim of maintaining inflation rates below, but close to, 2%. Such a constellation
suggests 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. Our
monetary policy stance will remain accommodative for as long as necessary, and will thereby
continue to assist the gradual economic recovery in the euro area. In this context, the
Governing Council confirmed its forward guidance that it continues to expect 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 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.
Let me now explain our assessment in greater detail, starting with the economic analysis.
Following a rise of 0.3% in the second quarter of 2013, real GDP in the euro area increased
by 0.1%, quarter on quarter, in the third quarter. Developments in survey-based confidence
indicators up to November are consistent with a positive growth rate also in the fourth quarter
of the year. Looking ahead to 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 last year 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.
This assessment is also reflected in the December 2013 Eurosystem staff macroeconomic
projections for the euro area, which foresee annual real GDP declining by 0.4% in 2013
before increasing by 1.1% in 2014 and 1.5% in 2015. Compared with the September 2013
ECB staff macroeconomic projections, the projection for real GDP growth for 2013 has
remained unchanged and it has been revised upwards by 0.1 percentage point for 2014.
The risks surrounding the economic outlook for the euro area are assessed 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 increased in
November 2013 to 0.9%, from 0.7% in October. The increase was broadly as expected and
reflected, in particular, an upward base effect in energy prices and higher 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%.
Broadly in line with this assessment, the December 2013 Eurosystem staff macroeconomic
projections for the euro area foresee annual HICP inflation at 1.4% in 2013, at 1.1% in 2014
and at 1.3% in 2015. In comparison with the September 2013 ECB staff macroeconomic
projections, the projection for inflation for 2013 has been revised downwards by
0.1 percentage point and for 2014 it has been revised downwards by 0.2 percentage point.
The risks to the outlook for price developments are seen to be broadly balanced over the
medium term. Upside risks relate to higher commodity prices and stronger than expected
increases in administered prices and indirect taxes, while downside risks stem from weaker
than expected economic activity.
Concerning the staff macroeconomic projections, let me inform you that the Governing
Council has decided to publish more details as of December 2013. You will receive this
material today after the press conference.
Turning to the monetary analysis, data for October confirm the assessment of subdued
underlying growth in broad money (M3) and credit. Annual growth in M3 moderated to 1.4%
in October, from 2.0% in September. This moderation was partly related to a base effect.
Annual growth in M1 remained strong at 6.6%, reflecting a preference for liquidity, although it
was below the peak of 8.7% observed in April. Net capital inflows into the euro area
continued to be the main factor supporting annual M3 growth, while 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 October, broadly
unchanged since the beginning of the year. The annual rate of change of loans to
non-financial corporations (adjusted for loan sales and securitisation) was -2.9% in October,
following -2.8% in September and -2.9% in August. 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 ECB's comprehensive assessment before it adopts its supervisory role under
the single supervisory mechanism 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. Further decisive 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 with the signals from the monetary analysis confirms
cross-check
this picture.
As regards fiscal policies, the Governing Council welcomes the European Commission's
assessment of the 2014 draft budgetary plans which were submitted in October for the first
time under the "two-pack" regulations. This new surveillance exercise needs to be fully
effective. In order to put high public debt ratios on a downward path, governments should not
unravel their efforts to reduce deficits and sustain fiscal adjustment over the medium term. In
particular, consolidation measures should be growth-friendly and have a medium-term
perspective, so as both to improve public services and minimise the distortionary effects of
taxation. At the same time, there is a need to push ahead with product and labour market
reforms, in order to improve competitiveness, raise potential growth, generate employment
opportunities and foster the adaptability of our economies.
We are now at your disposal for questions.