MNI POLICY: ECB's De Guindos: Coronavirus Adds To Uncertainty

By Luke Heighton

     FRANKFURT (MNI) - The coronavirus outbreak has added a "new layer of

uncertainty" to global growth prospects, ECB Vice President Luis De Guindos said

Thursday, with the scale of its potential effects still unknown.

     In a speech in Frankfurt, De Guindos also reiterated that the ECB's

strategic review of its monetary policy will take a year to complete, and

repeated President Christine Lagarde's assertion that the process will not

hamper the Governing Council's willingness to react to changes is the macro

environment.

     Here are the key points:

     - International trade remains "weak" and uncertainty around the future

trading relationships among major global partners "elevated," despite receding

somewhat after the U.S.-China phase-one agreement. "The outbreak of the

coronavirus and its potential effect on global growth add a new layer of

uncertainty."

     - "This global weakness continues to weigh on manufacturing," he continued,

despite some forward-looking survey indicators showing "tentative signs of mild

improvements." "Overcoming the manufacturing recession that has weighed on euro

area growth performance in the last couple of years is still challenging," De

Guindos continued, albeit "we do not see spillovers from the manufacturing

weakness to the service sector."

     - Euro area economic growth has "moderated" in recent quarters, and risks

remain tilted to the downside, yet the underlying fundamentals for a "continued

though moderate" expansion remain in place, De Guindos said. The outlook for

global economic activity outside the euro area shows some signs of improvement.

     - The process of the review "is expected to last one year," and will have a

"long-term perspective," with the aim of building an "efficient and lasting

framework," De Guindos said. Issues such as the "quantitative formulation of

price stability, together with the approaches and instruments by which price

stability is achieved," will be considered, alongside "financial stability,

employment and environmental sustainability," in so far as they are relevant in

pursuing the ECB's mandate.

     - The review will reflect upon the "effectiveness and the potential side

effects of the monetary policy toolkit developed over the past decade. Finally,

the review will include an examination of directions in which the economic and

monetary analyses through which the ECB assesses the risks to price stability

could be enhanced, as well as an evaluation of our communication practices."

     - The review "will not interfere with our meeting-by-meeting policy agenda,

in which we will continue to set policy as appropriate given the evolving

outlook," De Guindos added. "Our reaction function is clear and entirely

data-driven."

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: M$X$$$,MT$$$$,M$$EC$]