DAVOS, Switzerland – European Central Bank president Mario Draghi laid out the hope that the ailing eurozone economic recovery will pick up steam over the coming months.
He told delegates Friday at the World Economic Forum that a stream of “solid” survey data are pointing to better times ahead for a region that’s grappled with a debt crisis, recession and sky-high unemployment over the past few years. Recent surveys of purchasing managers and consumers have indicated growing buoyancy.
“The hard data are not however as uniformly good as the survey data,” said Draghi, who has been widely credited for helping to douse the debt crisis fires. “In a sense, this behaviour reflects very similar behaviour that took place in the United States a year, a year and a half ago.”
The U.S. has achieved so-called escape velocity that is bearing down on unemployment and prompted the Federal Reserve to start reducing its extraordinary monetary stimulus, which has been in place, in its various guises, for around five years.
In the third quarter of 2013, the eurozone grew by a paltry quarterly rate of 0.1 per cent. Figures for the final three months are due next month and most economists expect a modest improvement with even some of those countries bailed out financially beginning to show some improvements.
Still, Draghi cautioned that the recovery at the moment is weak, fragile and uneven.
“The recovery is gradually taking place but the risks are to the downside,” Draghi said.
One concern that has grown over the past few months has been the sharp fall in inflation. The annual rate of inflation was 0.8 per cent in December, way down on the ECB’s objective to keep price rises just below 2 per cent. The fall has triggered speculation in some circles that the eurozone is about to suffer a debilitating bout of deflation when falling prices can prompt consumers to delay spending in the hope of getting better bargains in the future.
However, Draghi said most of the low inflation problems in the eurozone are centred on those countries that have needed external financial assistance, such as Greece and Spain. Once the change of relative prices has been accomplished, which economists argue is necessary for them to get more competitive, inflation rates should rise again, Draghi said.
In addition, Draghi said the low inflation rates may just be a function that the eurozone has suffered a stark financial crisis. Similar fears were raised after the 1999 Asia crisis and the 2008 global financial crisis.
Draghi praised those countries, such as Greece, which have made big strides over the past few years to get their public finances into shape.
However, he said they now need to make sure their budget plans become more “growth-friendly” in order to get unemployment down. Across the eurozone, unemployment stands at around 12 per cent, way ahead of the U.S.’s rate of 6.7 per cent. In Greece and Spain, around a quarter of the population is out of work. Among the young, the picture is even worse with nearly 60 per cent looking for work.