ECB's Weidmann remains upbeat on economy

FRANKFURT: There are grounds to be positive about the economic outlook for Germany and the euro area even as the inflation outlook worsens, European Central Bank Governing Council member Jens Weidmann said. "All things considered, the economic outlook for the euro area is thus not as bad as it is sometimes made out to be," Weidmann, who heads Germany's Bundesbank, said in a statement at the release of the institution's annual report in Frankfurt on Wednesday. That's even though "downside risks to euro-area price developments have recently risen," he said.

The Bundesbank said in the report that profit for 2015 rose to 3.2 billion euros ($3.5 billion) from 3 billion euros the previous year, as net income from financial operations rose as net interest income declined to a record low. It "tentatively" lowered its risk provisions to 13.6 billion euros as holdings of euroarea securities purchased during the sovereign debt crisis diminished. The profit was transferred in full to the federal government, the Bundesbank said.

The ECB is set to review and possibly expand its monetary stimulus at its March 10 policy meeting. Referring to the debate in Germany over the use of cash and the impact of possibly more-negative interest rates, Weidmann said that curtailing the use of paper currency to discourage hoarding was the "wrong way" to respond to monetary policy challenges.

"There is no disputing the possibility of evasive action in the holding of cash if interest rates fall too far below zero," he said. "Instead of focusing on financial repression, we should be discussing how to return to higher interest rates through increased growth." Weidmann said that it would be "dangerous to simply ignore" the long-term risks and side-effects of the ECB's accommodative monetary policy.

The Bundesbank president also said that Germany's economy remains "in good shape," with stimulus coming from low energy prices as well as from higher spending in response to the refugee crisis.