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Eurozone inflation and growth to pick up says Draghi

The Euro logo is seen in front of the European Central bank Image copyright Getty Images

Eurozone inflation rates are likely recover in 2016, European Central Bank (ECB) president Mario Draghi has said.

Mr Draghi was speaking after the ECB kept its main interest rate unchanged in a widely expected decision.

Inflation, at minus 0.1%, remains well below the ECB's target and policymakers had been concerned about the region falling into a deflationary spiral.

But Mr Draghi said he expected the bank's recent stimulus measures to boost prices.

Stimulus measures

The bank raised its inflation outlook for 2016 to 0.2%, from 0.1% previously, while forecasting economic growth of 1.6%, from 1.4%.

Mr Draghi said he expected rates to remain very low or negative in the next few months before edging higher in the second half of 2016.

"Supported by our monetary policy measures and the expected economic recovery, inflation rates should recover further in 2017 and 2018," he said.

The comments followed a decision by the ECB's governing council, meeting in Vienna, to hold its benchmark interest rate at 0% and its deposit rate at minus 0.4%.

Brexit threat

Mr Draghi said the stimulus measures were bearing fruit, though subdued economic growth in emerging markets and the UK referendum on the EU could threaten the euro area's recovery.

"The risks to the euro area growth outlook remain tilted to the downside but the balance of risk has improved on the back of the monetary measures taken and the stimulus still in the pipeline," he told a news conference.

"Downside risks continue to relate to developments in the global economy, to the upcoming British referendum and to other geopolitical risks."

Boosting employment

Describing the UK, Europe and the eurozone as "mutually beneficial," Mr Draghi said the ECB was prepared for any outcome when the UK holds the 23 June referendum.

"The ECB has a view whereby the UK should remain in the European Union because the European Union will benefit from its permanence and we believe the UK too will benefit from staying in the European Union," he said.

He added that reforms to raise productivity and improve the business environment were necessary in all euro area countries. These were essential to increase investment and boost job creation, he said.

The eurozone economy expanded by 0.5% in the first quarter, but unemployment remains persistently high at 10.2%.

Patrick O'Donnell, investment manager at Aberdeen Asset Management, said Mr Draghi "just about managed" to show his plan was working.

"He's said growth will be OK and the ECB's initiatives are making progress but that more needs to be done," Mr O'Donnell said.

"Once again he's lumped responsibility back at politicians' doors by saying structural reforms should be faster. It's no great surprise, but reassuring, that the ECB is thinking about Brexit amongst other risks."

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