ECB's Draghi says euro zone on track for "very gradual" recovery

Sun Jun 2, 2013 9:10pm EDT
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SHANGHAI (Reuters) - The euro zone economy is on track for a recovery later this year driven by the European Central Bank's loose monetary policy and demand from abroad, the bank's President Mario Draghi said.

The ECB cut interest rates to a new record low in May and said it would act again if necessary but its hand may in part be stayed this month and going forward by a rebound in inflation, which rose back to 1.4 percent in May from 1.2 percent in April.

That is still way below the bank's roughly 2 percent target and unemployment in the euro zone reached a fresh high in April at 12.2 percent, fuelling further calls for policymakers to do more to help the economy.

"The economic situation in the euro area remains challenging but there are a few signs of a possible stabilization, and our baseline scenario continues to be one of a very gradual recovery starting in the latter part of this year," Draghi said in the text of a speech prepared for the International Monetary Conference in Shanghai.

After the ECB's last policy meeting a month ago, the bank said economic activity should stabilize and recover gradually. The bank meets again on rates next Thursday.

Ahead of a court hearing in Germany later this month on complaints about the ECB's new government bond purchase program, dubbed Outright Monetary Transactions (OMT), Draghi spent much of the speech defending the initiative.

He said the threat of the ECB buying bonds had played a key role in calming financial markets, from which "virtually all economic agents, including corporations, banks and households" were benefiting.

"Nevertheless, vulnerabilities remain," Draghi said.

Calmer markets have given governments more breathing space to adjust and last week, the European Commission announced that several countries would have more time to meet deficit targets.   Continued...

President of the European Central Bank Mario Draghi delivers a speech on the future of Europe at the Guildhall in central London May 23, 2013. REUTERS/Stefan Wermuth