ECB Sees Modest Economic Recovery for Euro ZoneECB Says Unemployment Remains Near Record Highs
By Pedro Nicolaci da Costa
March 22, 2014 2:30 p.m. ET
The euro zone's tepid economic recovery is "real" but plenty of risks remain, including the prospect of slower growth in emerging markets and the possibility of an escalation of tensions between Russia and Ukraine, Vitor Constancio, European Central Bank's deputy president, said on Saturday.
The currency union's economy posted a third straight quarter of growth at the end of 2013, though gross domestic product fell 0.4% for the year as a whole.
"The recovery is still modest," Mr. Constancio said at a research conference held at the Federal Reserve board in Washington. "The risks are to the downside, not to the upside." Unemployment in the euro zone remains near record highs, with countries like Spain and Greece particularly hard hit.
Mr. Constancio also expressed concern about "very low" inflation, which at 0.7% remains far below the central bank's official target, which is below but close to 2%. He said there is still plenty of slack or spare capacity in the economy, a gap which he doesn't see closing until late 2016 or early 2017.
Still, Mr. Constancio emphasized the ECB has the tools it needs to deal with any possible bumps on the road to recovery, including the possibility of using negative interest rates or resorting to asset purchases.
"We have a situation with inflation being very low," Mr. Constancio said. "These are big challenges for monetary policy."
Praising a European Union agreement this week on a single resolution mechanism for banks, Mr. Constancio said the measure, in addition to bank stress tests he is overseeing, should alleviate lingering concerns about the health of Europe's banking system. He said this was a key step in ensuring the economic expansion is sustained.
