Live replay of EP Committee on Economic and Monetary Affairs: Monetary Dialogue with Mario DRAGHI, President of the European Central Bank

Brussels

meeting

European Central Bank

DRAGHI, Mario (IT)

monetary dialogue with the ECB (T)

(2) EP Committee on Economic and Monetary Affairs: Monetary Dialogue with Mario DRAGHI, President of the European Central Bank (3:14:07 - 3:19:56)

SOUNDBITE (English), Mario DRAGHI, President of the European Central Bank, Mr Chairman, Honourable Members of the Economic and Monetary Affairs Committee, Ladies and gentlemen, I am very pleased to be back speaking to your committee for the third hearing of this year. A year ago, we were discussing together the moderate pace of the recovery in the euro area. We were witnessing a slight loss of momentum and assessing the impact of the UK referendum. Over the past 12 months, however, the recovery has accelerated and broadened, supported by the pass-through of our monetary policy.

SOUNDBITE (English), Mario DRAGHI, President of the European Central Bank, <p align="left">In my remarks today I will discuss the current economic outlook and the impact of our monetary policy measures. At the request of the committee, I will focus in particular on two topics related to the ECB&rsquo;s monetary policy, namely the corporate sector purchase programme (CSPP) and monetary policy implementation across the euro area.</p>  <p align="left">The economic expansion is now firm and broad-based across euro area countries and sectors. Real GDP growth was better than expected in the first half of 2017, coming in at 2.3%, year on year, in the second quarter. The euro area economy has enjoyed 17 consecutive quarters of growth, and the latest information indicates continued momentum in the period ahead.</p>

SOUNDBITE (English), Mario DRAGHI, President of the European Central Bank, The ongoing recovery is, crucially, driven by domestic forces, and the labour market has notably improved. The unemployment rate has fallen to its lowest level in eight years. The number of people employed in the euro area has increased by almost 7 million since mid-2013. These employment gains, together with increasing household wealth, are supporting the private consumption outlook. Moreover, investment is improving, buoyed by very favourable financing conditions. The domestic drivers are making the recovery more robust and resilient to adverse external influences. According to the September ECB staff macroeconomic projections, the economic expansion will continue at growth rates above potential over the projection horizon. Annual real GDP is projected to increase by 2.2% in 2017, by 1.8% in 2018 and by 1.7% in 2019.

SOUNDBITE (English), Mario DRAGHI, President of the European Central Bank, Risks surrounding the euro area growth outlook are broadly balanced. At the same time, downside risks continue to exist, mainly related to global factors and developments in foreign exchange markets. The firm economic recovery still needs to translate more convincingly into stronger inflation dynamics. As I reported already in the past, deflation risks have essentially disappeared. Nevertheless, measures of underlying inflation have picked up only moderately over recent months. Headline inflation, which was 1.5% in August, is expected to temporarily decline towards the turn of the year, driven mainly by base effects in the energy component. Afterwards, it is expected to pick up gradually, reaching 1.5% in 2019, according to the ECB staff projections. Overall, we are becoming more confident that inflation will eventually head to levels in line with our inflation aim, but we also know that a very substantial degree of monetary accommodation is still needed for the upward inflation path to materialise.

SOUNDBITE (English), Mario DRAGHI, President of the European Central Bank, Moreover, we still see some uncertainties with respect to the medium-term inflation outlook. Most notably, the recent volatility in the exchange rate represents a source of uncertainty which requires monitoring with regard to its possible implications for the medium-term outlook for price stability.  We therefore need to be patient and persistent. An upward adjustment of headline inflation that is durable and self-sustained requires a further absorption of economic slack. This, in turn, still requires a very ample degree of monetary policy accommodation. With this in mind, we will decide later this year on a re-calibration of our instruments that maintains the degree of monetary support that the euro area economy still needs to complete its transition to a new balanced growth trajectory characterised by sustained conditions of price stability.