Tuesday, May 13, 2014

ECB To Be Driven Toward Stimulus Even as Economy Grows

The euro area’s fastest economic growth in three years probably won’t be enough to stop Mario Draghi from easing monetary policy. Even with data this week predicted to show the expansion accelerated in the first quarter, the European Central Bank president looks set to push ahead with measures that could range from rate cuts to liquidity injections. Inflation stuck at less than half the ECB’s goal points to a revival that is still too slow, according to the forecasts.

Draghi is fighting to prevent a prolonged period of subdued price gains from derailing the recovery in the 18-nation currency bloc before it becomes entrenched. His declaration last week that officials are “comfortable” with taking action in June suggests a new policy response is imminent. GDP in the euro area probably climbed 0.4% in the three months through March, according to the estimates. That would be twice as fast as the prior quarter and the highest rate since the beginning of 2011.

The region exited its longest ever recession in the second quarter of last year. The recovery may also struggle to gain traction because of the strength of the euro, which Draghi said is a “cause for serious concern.” The single currency has climbed almost 8% against the dollar since July, curbing the price of imported goods and undermining the competitiveness of euro-area companies. It was little changed at $1.3766 today, near the lowest level in a month.

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