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Draghi sees euro zone beginning to recover

Bloomberg and Reuters Frankfurt and London

An economic recovery in the euro zone should begin later this year as an absence of inflation risks should allow the European Central Bank (ECB) to maintain record-low interest rates, bank president Mario Draghi said yesterday.

“Later in 2013, economic activity should gradually recover, supported by our accommodative policy stance,” Draghi said after policymakers kept the benchmark rate at 0.75 percent.

Inflation risks were contained, allowing the ECB’s policy “to remain accommodative”, and economic weakness would prevail only “in the early part” of this year, he said.

The latest data suggest that the 17-nation euro economy, which slipped into recession last year, is starting to stabilise, easing pressure on the ECB to lower rates further.

At the same time, a rising euro could hurt exports and stymie the recovery before it has begun.

The euro fell as Draghi spoke, dropping more than half a cent to $1.3487.

This month it reached a 14-month high against the dollar and a three-year high against the yen. It has risen 11 percent on a trade-weighted basis since Draghi pledged on July 26 last year to do whatever was needed to preserve Europe’s monetary union.

Draghi said the euro’s exchange rate was in line with its long-term average, though officials would monitor it in case a “sustained” appreciation altered the ECB’s assessment of risks to price stability.

“The euro is a little bit too strong,” Bernard Charles, the chief executive at Dassault Systemes, said. This would “have an effect this year” on the economy and its “capacity to export”, he added.

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