The “positive contagion” on financial markets is not yet feeding into the economy at large but the eurozone should see recovery in the second half of the year, ECB President Mario Draghi said on Friday.
The number-one objective is to overcome fragmentation of financial markets
Speaking at the World Economic Forum, Draghi said that the European Central Bank’s loose monetary policy was helping the eurozone return to growth, but that much remained to be done.
“The level of economic activity is currently in the process of stabilising at very low levels ... We see a recovery in the second half of the year,” Draghi said in Davos. “All the indices are now pointing to substantial improvement of financing conditions.”
But Draghi immediately tempered any thoughts of normalis-ation, saying that the economy at large was still troubled.
“It is a situation where you have positive contagion on the financial markets and for the financial variables, but we don’t see this transmitted to the real economy yet.”
Even Germany, eurozone’s economic powerhouse, has seen the debt crisis bite, with first estimates of a 0.5 per cent Gross Domestic Product contraction in the fourth quarter of last year.
However, Draghi said that this year had begun on a better note than last.
“All in all, the background is more favourable than it was at the same time last year.”
For 2013 the number-one objective was to overcome fragment-ation of the financial markets, the Italian said.
Doubts over the health of public finances and banks in several countries has led to large differences in lending rates across the Union, with healthy northern countries seeing record-low rates while consumers in southern Europe face much higher costs.
Draghi noted the positive impact of the Central Bank’s announcement of its new OMT programme to buy government bonds of indebted countries. It has definitely helped to remove the worst fears of the common currency area falling apart.
But the Central Bank will not be satisfied before the real economy is also aided by Central Bank actions, Draghi added.
“At the end of July, we announced the OMT programme, which turned out to be very helpful in removing the tail risk for the euro as such,” Draghi said.
“Are we satisfied with that? I think, to say the least, the jury is still out, because all in all we have not seen equal momentum on the real side of economy, and that’s where we have to do much more.”