Mario Draghi told the European Union that additional monetary stimulus and a much more expansionary fiscal policy may be needed to overcome persistent economic weakness, at a summit that also saw him win a standing ovation from leaders.
The European Central Bank president said the euro zone’s rebound from an economic slowdown last year has been weaker than expected, largely because of pervasive uncertainty in global trade, according to a person familiar with the behind-closed-doors discussion.
In the absence of an improvement to the outlook for inflation, additional monetary stimulus will be required, Draghi said. That echoes a speech he made earlier in the week in Sintra, Portugal, which prompted investors and economists to ramp up bets that the ECB chief will cut interest rates from record lows before his term ends in October.
Economic reports on Friday highlighted the bloc’s struggle to get out of its rut. Purchasing managers surveys showed signs of stabilizing at the end of the second quarter, but weak sentiment is keeping policy makers on edge.
Still, monetary policy alone can’t shoulder the burden, Draghi said in Brussels, according to the person. In case of a deterioration, governments will need to loosen their purse strings, with fiscal policy becoming much more expansionary than currently projected for next year.
Draghi’s assessment was made at a meeting with EU leaders to discuss the economic situation in the euro area. Telling them this was his last summit, he was greeted with a standing ovation from his peers, according to the person. Leaders including French President Emmanuel Macron and Italian Prime Minister Giuseppe Conte took the floor to praise his work.