ECB’s Visco warns of weaker growth

Bloomberg

Bank of Italy Governor Ignazio Visco joined his European counterparts in signalling that economic growth will be much weaker than predicted, warning of the implications for euro-area inflation.
“The prospects for the Italian economy are less favourable today than they were a year ago,” Visco, who sits on the European Central Bank’s Governing Council, said in a speech to
the annual Assiom Forex conference in Rome.
With other euro area members also seeing their economic outlook darken, Visco signalled the impact on inflation already shows. “The transmission of the increase in wages to prices has been slowed by the weakness of economic activity in recent months.”
The comments are likely to add fuel to the debate over what ECB policy makers can do to prop up the economy after they ended bond buying in December and suggested last month that they don’t see an urgent need to offer banks new long-term loans.
The Banca d’Italia’s forecasts of 0.6 percent growth this year and about 1 percent expansion in 2020 are subject to “downside risks, partly originating abroad, but which still primarily reflect Italy’s own weaknesses,” Visco said. He cited the uncertainty surrounding growth, the fiscal-policy stance and the need to resume “a credible path to reduce the burden of public debt on the economy.”
Visco’s remarks cap a week dominated by negative economic news. A report showed Italy slipped into first recession since 2013 in fourth quarter amid a slump in industry and stagnant services activity.
In Germany, the biggest decline in retail sales in more than a decade in December sparked speculation whether Europe’s largest economy might have succumbed to a recession after all, defying the Federal Statistics Office forecast for “slight” growth in the fourth quarter. In his Rome speech, Visco said he was also worried about the consequences of higher borrowing costs.