European Central Bank Vice-President Vitor Constancio said Thursday that the Eurozone was sitting in a “creditless recovery” with very low inflation but that moderate growth would likely result from the broader recovery gaining traction in the currency area.
Speaking to a panel on growth challenges to the Asia Europe Economic Forum in Berlin, Constancio also said that the current low levels of inflation around the Eurozone were in part the result of fiscal austerity programmes in some member states, reflecting relative price adjustments needed to restore competitiveness.
“This does not mean at all that we are complacent about risks arising from a too protracted period of low inflation,” Constancio said. “We have therefore reaffirmed our forward guidance and stressed that we are determined to act swiftly if required and do not rule out further monetary policy easing.”
However, while explaining the low-inflation conditions around the Eurozone, Constancio also insisted that deflation risks were not apparent.
“There is no evidence so far that economic agents are postponing expenditure plans, which is sometimes seen as an indication of deflation,” he said. “Domestic demand is strengthening, as suggested by the rise in consumer confidence, which in April reached a level last seen in 2007.”
Constancio repeated this view during the question-and-answer session that followed his remarks, insisting there was no “Japan like” scenario of persistently falling prices in the euro area.
He also said that while the most recent ECB report, which included a small downward revision of inflation by the Survey of Professional Forecasters, was “not unexpected”, he again noted that next month’s ECB Staff forecasts for medium-term inflation would be the main criteria for any interest rate decision by the Governing Council when it meets in Frankfurt on June 5.
Constancio defended the use of non-conventional monetary policies by central banks around the world, arguing that earlier exits by major central banks would have worsened economic conditions both globally and in emerging markets in particular.
“This suggests that a cooperative solution to reduce the spillover effects of an exit from unconventional monetary policy measures would consist in advanced economies making progress to sustain aggregate demand and growth,” he said. “And emerging markets accepting an appreciation of their currencies – which they often refuse to do.”