Draghi dampens euro area economic recovery talk

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European Central Bank (ECB) President Mario Draghi expressed caution over the recovery in the 17-member euro area economy which shrank at the fastest pace in nearly four years last quarter as the region's recession deepened.

Draghi stressed that economic weakness is expected to prevail in the first half of 2013 but expected a gradual recovery in the region's economy later in the year.

The 17-member euro area economy shrank 0.6 per cent in Q4 2012 from the previous quarter as the lingering debt turmoil and a severe austerity drive squeezed demand, signaling a deepening economic downturn in the region

Draghi also expressed concerns over the recent appreciation of the euro against the dollar which threatens to deepen the region's economic downturn by crimping demand for Eurozone exports as a stronger euro makes the region's shipments less competitive in overseas markets.

Draghi said that exchange rate was important for price stability and growth and that the central bank would assess the impact of a stronger euro on the economy.

While French officials have urged government actions to stem the gains in the euro the ECB is adopting a wait and watch approach and using verbal intervention to talk down the single currency.

"Economic weakness in the early part of 2013 is expected to be followed by a very gradual recovery later in the year. Later in 2013 economic activity should gradually recover", Draghi said.

Story first published: Tuesday, February 19, 2013, 16:30 [IST]
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