September 23, 2019 / 1:12 PM / 2 months ago

Euro zone economic rebound not in sight: ECB's Draghi

European Central Bank (ECB) President Mario Draghi arrives to testify before the European Parliament's Economic and Monetary Affairs Committee in Brussels, Belgium September 23, 2019. REUTERS/Francois Lenoir

FRANKFURT (Reuters) - A euro zone economic rebound is not in sight and imported weakness risks infecting the domestic euro zone economy, European Central Bank President Mario Draghi said on Monday, justifying the bank’s fresh stimulus scheme unveiled earlier this month.

Euro zone business growth stalled in September, fresh data showed earlier, dragged down by shrinking activity in Germany, the bloc’s economic engine, where a manufacturing recession deepened unexpectedly.

“Recent data and forward-looking indicators – such as new export orders in manufacturing – do not show convincing signs of a rebound in growth in the near future and the balance of risks to the growth outlook remains tilted to the downside,” Draghi told the European Parliament’s committee on economic affairs.

The ECB cut rates to record lows two weeks ago, unveiled plans to restart debt purchases and kept the door open to more rates cuts in the hope of lowering borrowing costs with the aim of stimulating spending, growth and ultimately inflation.

Draghi said that services, the backbone of the domestic economy, appeared to remain resilient for now but would not be indefinitely immune to troubles in export-focused sectors.

“The longer the weakness in manufacturing persists, the greater the risks that other sectors of the economy will be affected by the slowdown,” Draghi added.

With the ECB having used up much of its firepower to fight off weak growth, Draghi repeated his calls for fiscal policy to play a bigger role, relieving monetary policy.

He also pointed to the benefits of a centralized fiscal instrument, like the federal budget in the United States, as a key tool to smoothing the business cycles.

“The ECB does not operate in a vacuum and other economic policies matter too,” Draghi said. “In other words, we need a coherent economic strategy in the euro area that complements and enhances the effectiveness of monetary policy.”

Reporting by Balazs Koranyi and Francesco Canepa; Editing by Kevin Liffey

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