Draghi bows out at ECB with warning on eurozone weakness
Mario Draghi, the outgoing president of the European Central Bank, has warned that slowing global growth and Brexit uncertainty pose a risk to growth in the eurozone economy amid concerns that Germany remains on the brink of recession.
Speaking in Frankfurt after his final ECB policy meeting before stepping down, Draghi said the ECB was concerned that the economy of the 19-member currency bloc, which has slowed this year along with much of the global economy, faced “protracted weakness” going into 2020.
With consumer and business confidence low and trade with the US hit by Donald Trump’s latest raft of import tariffs, risks were all “to the downside”, said the Italian economist, who will be succeeded on 1 November by former International Monetary Fund head Christine Lagarde.
He said: “The incoming data since the last governing council meeting in early September confirm our previous assessment of a protracted weakness in the euro area growth dynamics, the persistence of prominent downside risk and muted inflation pressures.
“The main risk from all viewpoints, but especially also from a financial stability viewpoint, is a downturn in the economy … whether it is global or it is eurozone.”
His comments followed a snapshot of business activity that pointed to the eurozone economy entering a period of “near stagnation”.
German companies were the worst affected, with employment in Europe’s largest economy falling for the first time in six years according to a closely watched business survey.
After 14 months of falling new orders from abroad and a steep drop in sales across the manufacturing sector in October, the German economy’s slide to the brink of recession appeared to be continuing unabated.
IHS Markit’s flash composite output index for German manufacturing and services – which is based on about 85% of the usual monthly replies – registered 48.6. It was little-changed from September’s near seven-year low of 48.5, where anything below 50 signals contraction.
Analysts said the year-long decline in German output had dragged down the 19-member eurozone to near stagnation.
The flash composite index for the wider eurozone increased to 50.2 in October, up marginally from 50.1 in September, thanks to small signs of green shoots from France, which increased its exports, Italy and other parts of the eurozone. It was the second smallest expansion of output across manufacturing and services since the current upturn began in July 2013.
The ECB revived its stimulus programme last month after a decline in inflation and GDP growth suggested the eurozone was heading for a period of contraction.
But Chris Williamson, the chief business economist at IHS Markit, said: “The [PMI] survey indicates that Mario Draghi’s tenure at the helm of the ECB ends on a note of near-stalled GDP, slower jobs growth, near-stagnant prices and growing pessimism about the outlook, piling pressure on Christine Lagarde to drive new solutions to the eurozone’s renewed malaise.”