Eurozone economy 'on course for recovery'

Updated: 2013-06-04 07:23

By Wu Yiyao in Shanghai (China Daily)

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The eurozone economy is on track for recovery, driven by the European Central Bank's loose monetary policy and also by increasing exports, Mario Draghi, the bank's president, said in Shanghai on Monday.

"The economic situation in the euro area remains challenging but there are a few signs of a possible stabilization, and our baseline scenario continues to be one of a very gradual recovery starting in the latter part of this year," Draghi told the International Monetary Conference.

Analysts said a recovery in the eurozone's economic situation will benefit China in the long run as risks in the region may be reduced, helping to boost the prospects of China's export-led companies.

The ECB's bond-buying program, also known as Outright Monetary Transactions, allows the bank to buy bonds of eurozone member countries to reduce their borrowing costs. The OMT was "designed to keep government bond yields just below panic levels", Draghi said.

The ECB cut interest rates to a record low in May and said it will cut rates further if necessary. Meanwhile, inflation rose by an acceptable 1.4 percent in May from 1.2 percent in April, remaining below the bank's target.

After the ECB's latest policy meeting in May, the bank said economic activity should stabilize and recover gradually. The bank will meet again on Thursday to discuss interest rates.

Draghi said buying bonds has played a key role in calming financial markets, while the establishment of OMT has benefited everybody. Recovery will be very gradual in the crisis-hit eurozone later this year, while vulnerabilities will linger, he said.

Unemployment in the zone reached a record high of 12.2 percent in April, with calls for policymakers to spur economic growth without endangering fiscal responsibility. Draghi said that to inspire confidence, policymakers must follow through with their fiscal reform agenda.

"Within the euro area, recent progress suggests that decision-makers are ready to tackle the simultaneous tasks of reforming their domestic economies and complementing the institutional architecture at the European level. The ECB will continue to support macroeconomic performance by ensuring price stability in the euro area," Draghi said.

Robert Lok, financial analyst with Shanghai Fulun Consultancy, said in the short term it is essential for eurozone countries to boost their real economies and enhance employment.

In the long run, recovering economies in the single currency area will also benefit Chinese companies, especially those that are export-led, he said.

"Consumer confidence in Europe improved in May, rising from -20.4 in April to -20.2, according to European Union data, and if this confidence continues to improve it will be good news here in China," Lok added.

China's trade with the European Union - the country's biggest trading partner - fell by 1.9 percent year-on-year to $124.41 billion in the first quarter, according to data from China's General Administration of Customs.

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