Investing.com - European Central Bank President Mario Draghi acknowledged a slowdown in the euro area economy on Thursday, saying risks around the outlook for growth had “moved to the downside.”
Speaking at the ECB’s post-policy meeting press conference, Draghi said incoming data have continued to be weaker than expected and said the slowdown was due to a fall in external demand as well as some country-specific reasons.
He added that growth is likely to be weaker in the short term.
"The risks surrounding the euro area growth outlook have moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility," he said.
He reiterated that the ECB remains ready to adjust its monetary policy instruments to ensure that inflation continues to move towards the central bank’s target.
"It's not true that the ECB has run out of fuel or out of instruments," Draghi said. "We still have all our monetary toolbox available."
The ECB left interest rates on hold as expected earlier in the day.
A recent sharp slowdown in euro area growth has fueled expectations that any further policy normalization could be delayed after the ECB ended its four-year long €2.6 trillion ($2.96 trillion) bond purchase plan last month.
Data earlier in the day showed that business activity across the bloc barely expanded at the start of the year, as a fall in new work pushed activity to a low not seen since the middle of 2013.
Similar surveys showed activity remained lackluster in Germany during January and contracted in France for a second month.
Economic weakness in the euro zone, coupled with growing concerns over the negative impact of global trade tensions have caused economists to push back their expectations for a first interest rate hike from the ECB since 2009.
“While an outright recession will probably be avoided this year, a sharper-than-expected slowdown in the U.S. or further escalation of the (U.S.-China) trade war may be enough to cause a mild recession,” Andrew Kenningham, chief euro zone economist at Capital Economics, warned.
In the midst of slowing growth, trade worries and lingering uncertainty regarding the U.K.’s separation from the European Union, economists don’t expect the ECB to raise its deposit rate until the fourth quarter and think it will wait until early 2020 to raise its refinancing rate from zero.
-- Reuters contributed to this report.
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