Europe’s economic slowdown came sooner than expected and factors holding back growth may persist in the near term but the European Central Bank is still making “substantial” progress in lifting inflation, ECB Chief Economist Peter Praet said.
Downplaying the impact of weak data, Praet said growth remains solid, the slowdown may be due to exceptional factors, and there are only a few signs that the euro’s appreciation in the past year is weighing on growth.
ECB policymakers are now debating whether to cut stimulus further this year as the euro zone has been on a five-year economic run. But weak growth and underwheling inflation prints could make it more difficult to cut support to the economy.
“We cannot yet declare ‘mission accomplished’ on the inflation front, but we have made substantial progress on the path towards a sustained adjustment in inflation,” Praet, considered a dove on the rate setting Governing Council, said in Paris on Thursday.
First quarter GDP data indicate that growth slowed to 0.4 percent in the first quarter from 0.7 percent in each of the preceding three quarters, likely triggering a string of revisions in projections for the year.
“The slowdown has come sooner than anticipated,” Praet said. “The downward surprise in incoming information has been broad-based, as it can be observed in both hard data and survey indicators across most sectors and countries.”
“While (exceptional factors) are likely to hold back economic activity in the near term, recent information remains consistent with a solid and broad-based expansion in domestic demand.”
While Praet said there were only few signs that a stronger euro is holding back export growth, he said a sharp decline in some export sentiment indicators indicates that global factors are becoming more prominent, particularly the threat of increased protectionism.