ECB'S Nowotny sees recovery coming to real economy

VIENNA Wed Jan 30, 2013 5:26am EST

VIENNA (Reuters) - A recovery in financial markets is feeding into the real economy to some extent although growth rates were still low, European Central Bank policymaker Ewald Nowotny said on Wednesday.

He said the Austrian Central Bank, which he heads, might have to revise its forecasts for Austria slightly upwards, and that forecasts for German growth might also improve slightly. "But it is still too early to be able to say that definitively."

Asked by reporters whether he saw 'positive contagion' from a renewed optimism in financial markets, Nowotny replied: "To a certain, careful extent."

ECB President Mario Draghi said last week that while some economic indicators had stabilized at low levels and financial markets' confidence had improved, this was not yet feeding through to the real economy.

Nowotny said: "The confidence indicators such as the Ifo index that we are receiving show an upwards trend - admittedly, one must soberly say, with low growth rates as a whole."

Spain, Europe's fourth-largest economy, sank deeper into recession in the fourth quarter of 2012, figures published earlier showed, as budget cutbacks and high unemployment prompted households to slash spending.

And banks across Europe made it harder for firms to borrow in the fourth quarter, the ECB said, boding ill for a euro zone recovery.

The euro zone's exports could also be hurt by a euro that is strengthening as policymakers in advanced countries, particularly Japan and the United States, act aggressively to reflate their economies, weakening their currencies.

Nowotny said, however: "It is still an exchange rate that is moving within the limits of its long-term band."

(Reporting by Angelika Gruber; writing by Georgina Prodhan. Editing by Jeremy Gaunt.)

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