ATHENS- The European Central Bank’s President Mario Draghi called on Tuesday for euro-area-wide fiscal stimulus aimed at boosting investment, saying the latest steps in this direction are insufficient.
Draghi, who will be replaced by Christine Lagarde next month, was reinforcing his plea for euro zone governments to push the bloc’s economy out of the doldrums, complementing the ECB’s own ultra-easy policy.
“The most effective response…would be an investment-led stimulus at the euro area level,” Draghi said in Athens.
Euro zone finance ministers are not planning any joint spending plan but they said last month they were ready to act if the economy took a turn for the worse.
Draghi praised a euro zone budget due to come into being in 2021 as “a step in the right direction” but he added it was insufficient “in terms of size or design”.
He said public investments at a national level would also help. Citing an ECB study, Draghi said that raising productive public investment in Germany by 1 percent for 5 years could boost the economy by up to 2 percent and private investment by up to 2 percent.
But if that also failed to come through, Draghi reaffirmed the ECB’s commitment to its own stimulus policies, which saw it announce new bond purchases last month and pledge to keep the money taps open for as long as needed.
“Whichever route is taken, monetary policy will continue to do its job,” Draghi said. “The latest decisions of the Governing Council have shown its determination in the face of a continuously weakening outlook for growth and inflation.”
Meanwhile, Germany’s leading economic institutes on Wednesday slashed their growth forecasts in Europe’s biggest economy for this year and next, blaming weaker global demand for manufacturing goods and increased business uncertainty amid trade disputes.
The revisions, which feed into the government’s own output projections, reflect growing concerns that a slowdown in Germany driven by a recession in the export-dependent manufacturing sector could hamper the broader euro zone economy.
The institutes said they now expect the German economy to grow by 0.5 percent this year and 1.1 percent in 2020. This compared with their April estimates of 0.8 percent and 1.8 percent respectively.
“An economic crisis with a pronounced underutilization of the German economy is … not in sight, although the cyclical downside risks are currently high,” the institutes said.
For 2021, the institutes predict a mild recovery with an economic expansion of 1.4 percent.
The government is due to publish its latest growth forecasts later this month. In April, it predicted growth of 0.5 percent for 2019 and 1.5 percent for 2020. – Reuters