Weak euro zone growth data raises questions about recovery, Lane says

Lane played down talk by colleagues that the ECB needs to lower its key rate to where it neither stimulates nor slows growth

Governor of the Central Bank of Ireland Philip Lane at the official opening of the bank's new Dublin Docklands headquarters.

The recent flow of relatively weak data on the euro zone economy has raised questions about the bloc's prospects but the European Central Bank still expects the recovery to take hold, ECB chief economist Philip Lane said on Wednesday.

Growth has been weak for most of the past two years on feeble consumption, poor investment flows and a deep recession in industry, forcing the ECB to keep pushing out its forecast for the expected recovery.

Lane acknowledged the weakness but said this still didn't represent a fundamental shift in how the economy operates and does not in itself mean a different growth profile.

"Some of the recent data raised some questions about (the recovery)," Lane told a conference of the Institute of International Finance. "But we still find this narrative of a good recovery in the economy as still very close to the baseline."

There is no dramatic weakness and some of the underlying data continue to point to improvement, Lane added.

"We do have pretty fundamental reasons for consumption to recover and for investment to recover the rest of this year and next year," Lane said.

Lane also played down talk by some of his colleagues that the ECB needs to lower its key rate to the so-called neutral level, where it neither stimulates, nor slows growth.

Lane said that the neutral, or r* in central bank parlance, is a theoretical level and actual rate changes are guided by the various shocks facing the economy and not the ECB's estimate for the neutral.

"The debate about r* is there in the absence of knowing what shocks are going to hit the economy," he said.

Reuters.