Mario Draghi policy woes in focus

Mario Draghi’s policy challenge was highlighted once again yesterday, with the fastest economic growth in a year overshadowed by another drop in consumer prices.

The eurozone inflation rate fell to minus 0.2% in April, a worse outturn than the 0.1% decline forecast by economists in a survey.

It wasn’t all bad news for the ECB president however, with the economy expanding 0.6% in the first quarter and unemployment declining in March.

Mr Draghi has said the situation in the 19-nation region is slowly improving, but that hasn’t assuaged his concerns about the inflation outlook.

Policy makers cut interest rates and ramped up other stimulus measures last month, and the ECB president has signaled he’s willing to do even more to revive price growth.

“We expect the economic recovery to proceed at a modest pace going forward,” said Nick Kounis, an economist at ABN Amro Bank.

“However, underlying inflationary pressures are likely to remain very weak given the slack in the economy and subdued wage growth,” he said.

Eurostat released the eurozone growth data about two weeks earlier than usual as it tries to make figures on output more timely, which could help inform the ECB’s policy-making.

The new timing brings the region into line with the US and UK, which also publish first estimates within about a month of the end of the quarter.

National data on Friday also provided some positive news, with both the French and Spanish economies expanding faster than expected in the first three months of the year.

Growth in France accelerated to 0.5% from 0.3%, helped by investment and consumer spending, while Spain shrugged off a political deadlock that’s left it facing new elections to grow 0.8%.

Despite the relatively positive GDP readings, Mr Draghi has been clear about his priorities and the need to prevent the emergence of deflationary risks.

“Growth is moderate but it’s steady,” he said after the April Governing Council meeting in Frankfurt last week.

“Now, as things are moderately improving, we’ve got to be very careful about not losing focus from our main objective, which is the return of inflation to our objective of a level close to but below 2%,” he said.