Mario Draghi gave the keynote speech at the Frankfurt European Banking Congress this morning in which he focused on the strong outlook for the Eurozone economy and how his monetary policy is playing a vital role. The speech was peppered with upbeat phrases and adjectives like solid, robust, unabated, endogenous propagation, resilient, remarkable and ongoing. According to Draghi.
The euro area is in the midst of a solid economic expansion. GDP has risen for 18 straight quarters, with the latest data and surveys pointing to unabated growth momentum in the period ahead. From the ECB’s perspective, we have increasing confidence that the recovery is robust and that this momentum will continue going forward.
Draghi is confident that future growth will be unabated for three reasons.
- Previous headwinds have dissipated;
- Drivers of growth are increasingly endogenous rather than exogenous; and
- The Eurozone economy is more resilient to new shocks.
In terms of previous headwinds, Draghi notes that global growth and trade have recovered, while the eurozone has de-leveraged.
For some years global growth and world trade have been a drag on the recovery. Now, we are seeing signs of a sustained expansion. Global PMIs remain strong. The share of countries in which growth has been improving relative to the previous three years has risen from 20% in mid-2016 to 60% today. And this has fed through into a rebound in world trade, which is growing at its strongest annual rate in six years, and may well become a tailwind going forward.
Domestically, a key headwind in the past has been the necessary deleveraging by firms and households. But this is also now diminishing as debt returns to more sustainable levels.
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