January 24, 2019 / 2:09 PM / 8 months ago

ECB says assessment of growth risks moved to downside

FRANKFURT (Reuters) - The European Central Bank downgraded its growth risk assessment on Thursday, acknowledging multiplying headwinds and suggesting that it would take even longer to normalise its exceptionally easy policy stance.

European Central Bank (ECB) President Mario Draghi holds a news conference, in Frankfurt, Germany January 24, 2019. REUTERS/Kai Pfaffenbach

ECB chief Mario Draghi argued that risks to growth are now tilted to the downside, ditching a long-standing view that they were broadly balanced, an apparent admission that the euro zone is slowing more than expected just weeks ago.

“The risks surrounding the euro area growth outlook have moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility,” Draghi told a news conference.

He said ECB policymakers were unanimous in their assessment that economic momentum was weakening and that the balance of risks had changed.

“And we were unanimous in assessing the factors that have caused the slowdown; namely, first and foremost, there is an increase in general uncertainty,” Draghi said.

“This increase in general uncertainty is being produced by the threats of protectionism ... actually extensive doubts about the multilateral rules that have underpinned our growth since the second World War.”

He also cited the protracted negotiations over Britain’s exit from the European Union in March and their “unclear outcome ... and of course, the implications that this might have”.

With Germany, France and Italy, the euro zone’s biggest economies, barely growing in the fourth quarter, concerns are growing that the ECB’s projections are too optimistic and will need to be cut once again at the bank’s next meeting in March.

While downgrading the risk assessment would appear acknowledge what is already obvious to investors, a change in the ECB’s guidance would risk fuelling expectations for policy action.

Some policymakers have argued that since the ECB is not yet prepared to take a concrete step, a guidance change not accompanied by a policy move would create an impression that the two are out of sync and lack coherence.

The ECB will next release economic projections on March 7m and major policy moves usually coincide with the publication of the forecasts.

Reporting by Balazs Koranyi; editing by Catherine Evans, Larry King

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