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ECB officials confident though economy softens

Recent data for euro area has pointed to growth levelling out, with gauges for economic activity and retail sales missing economist estimates and investor confidence slipping

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ECB's Mr Praet says he sees no reason to change the bank's economic outlook.

Frankfurt

THE European Central Bank's (ECB) top officials lined up to express cautious confidence in the euro-area economy after a series of reports pointing to a surprisingly weak start to the year, while reiterating that they will move only slowly towards the end of stimulus.

President Mario Draghi and three of his most senior colleagues signalled on Monday that while inflation remains too low and a global trade spat poses a new threat, the region's economic upturn is still solid.

The comments come just over two weeks before the Governing Council meets to discuss how and when it might end its bond-buying programme.

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"We expect the pace of economic expansion to remain strong in 2018," Mr Draghi said in the institution's annual report, while chief economist Peter Praet later said that he sees no reason to change the ECB's outlook.

Vice-president Vitor Constancio, presenting the report to the European Parliament, said that price pressures will rise gradually and officials must remain cautious not to "derail" those developments.

A spate of recent data for the euro area has pointed to growth levelling out, with gauges for economic activity and retail sales missing economist estimates and investor confidence slipping. The downward dynamic has been particularly pronounced in Germany, where figures for exports and industrial output both saw a sharp drop in February. French manufacturing unexpectedly dropped in February, data on Tuesday showed.

Economists have so far written off much of the region's slowdown as being caused by temporary factors. In March, prior to the release of recent data, the ECB raised its 2018 forecast for growth to 2.4 per cent.

"In the first few months of this year, we have seen a softening of a number of indicators but they're still fully in line with the good scenario that we have, so we don't see reasons to change our assessment of our projections," Mr Praet said in Frankfurt. "We have to be careful because downside risks have increased, but in a context where risks remain broadly balanced," he added.

Executive board member Benoit Coeure told France Info Radio that "we don't have worries about eurozone growth" because the bloc is simply stabilising after last year's acceleration, though he also acknowledged that there is "not enough" inflation. He said that the ECB will soon begin discussions about what to do with its asset buyback programme, set to continue until at least September and top 2.5 trillion euros (S$4 trillion).

Mr Praet and Mr Coeure also warned that the threat of a global trade war is increasing the risk to growth. That was highlighted on Monday with China evaluating the potential impact of a gradual yuan depreciation in response to a trade spat with US President Donald Trump.

While the ECB is confident in the outlook, Mr Draghi reiterated that "patience was needed for inflationary pressures to build up, and that persistence was necessary in our monetary policy for inflation dynamics to become durable and self-sustained".

Still, the impact of lower unemployment on price pressures is not so straightforward, and the annual report cited recent research that shows that models measuring this relationship tend to overestimate inflation. BLOOMBERG