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Still Looking For Weakness

By Luke Heighton
     FRANKFURT (MNI) - The drivers of the eurozone's expansion remain in place,
ECB President Mario Draghi said in a speech on Wednesday, blaming a loss of
momentum that began in 2018 mainly on global uncertainty.
     "The domestic economy has remained relatively resilient," Draghi said.
     Here are key points from his speech in Frankfurt:
     --"We are now seeing a more persistent deterioration of external demand,"
Draghi said. "But a soft patch does not necessarily foreshadow a serious slump."
     --ECB analysis suggests that external demand has not yet spilled over
significantly into domestic demand, "but the risks have risen in the last months
and uncertainty remains high. This is why our medium-term outlook remains that
growth will gradually return to potential, but the risks remain tilted to the
downside," Draghi said.
     --Market-based measures of inflation expectations have edged down recently,
but have "mainly been driven by a decline in inflation risk premia, not by a
drop in 'genuine' inflation expectations. We therefore remain confident that the
sustained convergence of inflation to our aim has been delayed rather than
     --In contrast to the U.S., Draghi said, "the structural conditions for
pass-through from wages to prices remain in place in the euro area. What appears
to be delaying the pass-through today is the fact that firms are absorbing
labour cost increases by squeezing profit margins. Moreover, even if the economy
were to slow more than expected, the risks to wage growth may be contained."
     --"If necessary, we need to reflect on possible measures that can preserve
the favourable implications of negative rates for the economy, while mitigating
the side effects, if any."
     --Should there be further delays in inflation convergence, Draghi said,
"just as we did at our March meeting, we would ensure that monetary policy
continues to accompany the economy by adjusting our rate forward guidance to
reflect the new inflation outlook. We are not short of instruments to deliver on
our mandate."
--MNI Frankfurt Bureau; +49-69-720-146; email:
--MNI London Bureau; +44 203 865 3829; email:
[TOPICS: M$E$$$,M$X$$$,MT$$$$,M$$EC$]