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ECB officials see euro-area economy stabilising at start of 2020

Monetary policy may stay on hold.
The euro-area economy is starting to regain its footing, two European Central Bank officials said on Tuesday, suggesting monetary policy will stay on hold for now.

Bank of France Governor Francois Villeroy de Galhau told bankers in Paris that recessions in the U.S. or Europe can practically be excluded this year. Speaking earlier in Frankfurt, Executive Board member Yves Mersch said the 19-nation economy was “certainly giving good signs of stabilisation” although it was premature to sound the all-clear.

Their cautious optimism follows reports suggesting the worst may be over for European manufacturers, while domestic demand is still robust amid unemployment close to a record low.

Trade tensions between the U.S. and China appear to be easing, with both countries poised to sign a first-phase agreement on Wednesday. At the same time, the European Union is now facing the risk of being dragged into a transatlantic commercial war over issues from France’s digital-services tax to aircraft subsidies.

Mersch and Villeroy said the euro area’s economic stabilisation so far is consistent with the ECB’s December projections, which saw a slight reduction in the 2020 growth forecast to 1.1%.

“We’ll see whether we will still have risks to this scenario being skewed to the downside,” Mersch said. “Certainly they are less skewed to the downside.” At the same time, “we still need to have other policy areas stepping in.”

Villeroy argued it’s “reasonable to expect that over the coming months our policies and interest rates will remain stable.”

© 2020 Bloomberg L.P.

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