Draghi: No improvements in sight

The head of the European Central Bank (ECB), Mario Draghi, stated on Thursday that the economic situation in the eurozone is expected to remain weak and that the central bank is ready to begin purchasing bonds from struggling member states once they submit appropriate requests for assistance.

– Economic activity in the eurozone is expected to remain weak – said Draghi at today’s regular press conference following the bank’s meeting, where it was decided that interest rates would remain at record low levels.

The European Central Bank (ECB) decided at its regular monthly meeting to keep the key interest rates at 0.75 percent, while the existing interest rates were also maintained by the Bank of England (BoE) at 0.5 percent, the banks announced in separate statements. Draghi also asserted that the latest economic research does not signal improvement for the remainder of the year. The weaknesses of the eurozone economy are particularly evidenced by the decline in business expectations last month to the lowest level since February 2010, as well as a report from the London firm Markit on the consecutive decline in industrial activity over the past 15 months.

Draghi reiterated the ECB’s stance on inflation, which is expected to fall below two percent next year. In October, inflation was estimated at 2.5 percent, significantly above the ECB’s target level of ‘close to but below’ two percent. He also reiterated the ECB’s readiness to activate the announced program for purchasing government bonds. – The ECB is ready to undertake so-called direct monetary transactions that should help avoid extreme scenarios – said Draghi at the conference. Regarding the economic forecast, risks for downward adjustments remain, while pressures on core inflation are expected to remain moderate, Draghi stated.

Leading central banks in Europe have kept interest rates unchanged despite worsening forecasts for European economies. The European Commission has cut its growth forecast for the eurozone in 2013 from an initially expected growth of one percent to just 0.1 percent. The growth of the eurozone’s main engine, the German economy, is projected to be 0.8 percent in 2012 and 2013, according to new EC forecasts.

– Germany has so far largely been spared from the problems that have affected the rest of the eurozone. However, the latest data suggests that developments there are beginning to have negative effects on the German economy – said Draghi. The Bank of England, in a separate report, also announced that it does not intend to increase the value of the existing quantitative easing program, alongside maintaining interest rates. According to new EC forecasts, the UK is expected to experience an economic decline of 0.3 percent this year, while it could expect growth of 0.9 percent next year.