FRANKFURT, July 25 (Reuters) - The European Central Bank opened the door to rate cuts and the restart of bond purchases on Thursday, aiming to prop up confidence in a bloc which has struggled with a manufacturing recession that risks unravelling years of stimulus.
Following are highlights of ECB President Mario Draghi’s comments at a press conference after the bank’s policy meeting.
DETERMINATION TO ACT
“If the medium-term inflation outlook continues to fall short of our aim, the Governing Council is determined to act.”
INFLATION CONVERGENCE FURTHER OUT
“We see projected inflation that says that convergence is further out in time.”
REBOUND LESS LIKELY
“(Our) last projections were in a sense suggesting that we might have had a rebound in the second part of the year. Now incoming signs show weaknesses - weakness of growth in the second, in the third quarter as well, so this rebound becomes less likely now.”
MATERIALIZATION OF RISKS
“The balance of risks was assessed to be on the downside... the simple prolonged and lingering of this uncertainty is by itself a materialization of one of these risks.”
WAS IT UNANIMOUS?
“The first discussion where there was a broad consensus, was on the current outlook.
“This (economic) outlook is getting worse and worse and it is getting worse and worse in manufacturing and getting worse and worse in countries where manufacturing is very important.”
TRADE WEAKNESS HITTING MANUFACTURING
“(Slower growth outlook) mainly reflects the ongoing weakness in international trade in an environment of prolonged global uncertainties, which are particularly affecting the euro area manufacturing sector.”
“Activity levels in the services and construction sectors are resilient and the labour market is still improving.”
SLOWER INFLATION PASS-THROUGH
“While labour cost pressures have strengthened and broadened amid high levels of capacity utilization and tightening labour markets, the pass-through of cost pressures to inflation is taking longer than previously anticipated.”
“Over the medium term, underlying inflation is expected to increase, supported by our monetary policy measures, the ongoing economic expansion, and stronger wage growth.”
DOWNSIDE GROWTH RISKS
“The risks surrounding the euro area growth outlook remain tilted to the downside, reflecting the prolonged presence of uncertainties related to geopolitical factors, the rising threat of protectionism, and vulnerabilities in emerging markets.”
SLOWER Q2, Q3 GROWTH
“Incoming economic data and survey information continue to point to somewhat slower growth in the second and the third quarters of this year.”
MUTED INFLATION PRESSURES
“Inflationary pressures remain muted and indicators of inflation expectations have declined.”
“A significant degree of monetary stimulus continues to be necessary to ensure that financial conditions remain very favourable and support the euro area expansion, the ongoing buildup of domestic price pressures, and, thus, headline inflation developments over the medium term.”
“The prolonged presence of uncertainties related to geopolitical factors, the rising threat of protectionism, and vulnerabilities in emerging markets is dampening economic sentiment, notably in the manufacturing sector.”
SOFTENING GLOBAL GROWTH
“While further employment gains and increasing wages continue to underpin the resilience of the economy, softening global growth dynamics and weak international trade are still weighing on the euro area outlook.”
EMEA News Desk
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