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3 months ago
ECB's Praet hints at more upbeat economic assessment as growth firms up
May 4, 2017 / 2:10 PM / 3 months ago

ECB's Praet hints at more upbeat economic assessment as growth firms up

The headquarters of the European Central Bank (ECB) are illuminated with a giant euro sign at the start of the "Luminale, light and building" event in Frankfurt, Germany, March 12, 2016. EUTERS/Kai Pfaffenbach/Files

BRUSSELS (Reuters) - Euro zone growth may accelerate more and some European Central Bank policy guidance could change as the recovery picks up, ECB chief economist Peter Praet said, reinforcing expectations for a more upbeat economic assessment from the bank in June.

Economic growth in the 19-member currency bloc is broadening and there is potential for a positive surprise in the second quarter, Praet told a conference on Thursday, noting that inflation was also set to rise gradually to near the ECB's target by 2019.

"There may be a little upside risk for Q2, so maybe a bit stronger than what we have," Praet said. "The balance of risks has improved."

His comments may fuel expectations for the ECB to tweak its statement on June 8, eliminating some or all of its references to downside risks and the possibility of adding more stimulus on top of an already unprecedented package.

Praet noted that the ECB's guidance could change, but he made it clear that the order of future steps and their dependence on a sustained rise in inflation were not up for discussion.

"These fundamental features of our forward guidance have a clear logic," Praet said. "All other features of our forward guidance are of a parametric nature and can be recalibrated depending on incoming data."

The ECB left its super-easy policy stance in place last week, noting that risks to growth have diminished. That signal was taken as a hint that it could include a more balanced or neutral assessment when new ECB forecasts are published in June.

The ECB has repeatedly said that it will keep buying bonds until the end of this year and that interest rates will remain at their current or lower levels well beyond that.

"We take comfort in the fact that euro area growth seems increasingly robust to adverse overseas influences," Praet added.

The euro zone economy expanded by 0.5 percent on the quarter in the first quarter, well outpacing the United States, and Praet said the second quarter could be better.

Still, he maintained the ECB's more cautious line on inflation, arguing that stronger wage growth was still needed for the rise in inflation to be sustainable.

He predicted that inflation would oscillate around 1.5 percent this year before a "gentle" rise in the coming years, coming close to the ECB's target of just under 2 percent by 2019, Praet said.

"In June, we will be able to draw on a more expanded information set than is available today, organised around new projections and including an updated assessment of the distribution of risks surrounding the economic outlook," Praet said.

Reporting by Jan Strupczewski; Writing by Balazs Koranyi; Editing by Francesco Canepa and Hugh Lawson

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