Mario Draghi, president of the European Central Bank. Picture: REUTERS
Mario Draghi, president of the European Central Bank. Picture: REUTERS

Frankfurt am Main — European Central Bank (ECB) chief Mario Draghi acknowledged Thursday that risks to the eurozone economy were "moving to the downside" even as the bank removed a key pillar of support to the region's economy.

"Risks surrounding the euro area growth outlook can still be assessed as broadly balanced," Draghi told reporters.

"However, the balance of risks is moving to the downside owing to the persistence of uncertainties related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility."

The warning came after the bank's governing council announced a formal end to its massive government and corporate bond purchasing scheme after nearly four years, withdrawing an unprecedented crisis-era stimulus measure.

The easy money scheme, known as quantitative easing (QE), has seen the ECB pump €2.6-trillion into the eurozone economy, and is credited with stoking growth and pushing inflation closer towards the bank's goal of just under 2.0%.

But the end of QE comes at a time when eurozone growth momentum is slowing, weighed down by concerns over a disorderly Brexit, Italy's budget woes and France's "yellow vest" protests.

Ongoing trade friction sparked by US President Donald Trump's "America First" policies has also unsettled markets.

"The overall environment, the atmosphere has become one characterised by general uncertainty," Draghi said.

But the Italian central banker was quick to stress that the ECB would continue to support the economy through ultra-low interest rates and by reinvesting the proceeds from maturing bonds for a long time to come -- keeping borrowing costs low.

He said the latest data and survey results "have been weaker than expected", partly because of "softer external demand" and "country and sector-specific factors".

But he nevertheless expressed "continued confidence" in the eurozone albeit it "with increasing caution".

He stressed that private consumption remained robust, powered by a strong labour market and rising wages.

"Domestic demand also backed by our accommodative monetary policy stance continues to underpin the economic expansion in the euro area," Draghi told reporters in Frankfurt.

"When you look at the economy, you still see the drivers of this recovery are still in place."

Draghi also unveiled the bank's latest growth and inflation forecasts, which for the first time included a look at 2021.

The bank trimmed its growth projections for 2018 and 2019 to 1.9% and 1.7% respectively, down from 2.0% and 1.8% previously.

For 2020, the Frankfurt institution still expects an expansion of 1.7%, before slowing to 1.5% in 2021.

Meanwhile, the ECB expects inflation to ease to 1.6% in 2019 before rising to 1.8% in 2021, in line with the bank's target.

Its inflation outlook for 2020 remains unchanged at 1.7%.

AFP