A range of economic data for the second half of the year points to continuing, moderate growth in the euro zone, one of the newest members of the European Central Bank's governing council said on Wednesday.
Euro zone growth has slowed sharply over the past year and the failure of a long predicted rebound to emerge has raised fears of a recession that could force the ECB to provide even more stimulus despite years of unprecedented support.
However Gabriel Makhlouf, Ireland's central bank governor, said the services and construction sectors continued to support growth in the bloc amid a global "synchronised slowdown" due to rising trade barriers and geopolitical uncertainty.
"In the euro area we are also seeing protracted weakness. Both hard and soft data for the second half of the year point to continuing, moderate growth," Makhlouf said in his first major speech since assuming the role in September.
"The trade tensions I mentioned and the uncertainty that this causes have had an effect on the manufacturing sector, particularly in Germany. But, despite this slowdown, the services and construction sectors continue to support growth. The labour market has also held up although many of you will know that employment and wages are often lagging indicators."
The former New Zealand treasury chief and senior British civil servant said he endorsed calls for a formal review of the ECB's monetary policy strategy that would allow it take on board the lessons of the financial crisis as well as its experience of the low-inflation environment.
Makhlouf, who succeeded Philip Lane after the Irishman became the ECB's chief economist, took on an Irish economy that has been the best performing in Europe since 2014 but faces into neighbouring Britain's exit from the European Union.
Trade and geopolitical tensions and Brexit pose risks to growth in the open economy, Makhlouf said, describing Brexit as an enormous change – and transition – for Ireland's citizens, economy and firms, even in an orderly departure.
Ahead of an annual review of the central bank's mortgage lending limits, Makhlouf said the measures were now a permanent feature of the market but that the bank must continue to look at whether the objectives and scope of its wider macroprudential framework remained appropriate to the current environment.
That includes whether they should be extended into the non-bank sector.
"There is likely to be another crisis we are not ready for and I worry it might have to do with the non-banking sector," he told students at Waterford Institute of Technology, without giving details. (Reuters)