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ECB's Draghi warns of 'lasting damage' from weak output

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European Central Bank President Mario Draghi warned on Thursday of "lasting economic consequences" of years of weak output.

"A too-slow return of output to potential is far from innocuous," Draghi said in a speech on Thursday. "On the contrary, it has lasting economic consequences, since it can ultimately lead to potential being eroded as well."

Every effort needed to be devoted to ensuring that output was returned to potential before subpar growth causes lasting damage, the ECB president said.

"For the ECB, this means that we do not let inflation undershoot our objective for longer than is avoidable given the nature of the shocks we face."

The ECB has already announced a slew of measures to tackle fragile growth and deflation, including cutting the deposit rate into negative territory and buying corporate bonds.

"The euro area faces a twin policy challenge: to get more firms in each sector to the productivity frontier, and to get more labor and capital to those productive firms," he said.

James Butterfill, head of research and investment strategy at ETF Securities Limited said there were political connotations to what Draghi was saying.

"He is asking, imploring governments to act, and so far they haven't," he told CNBC. "In a way, he has done his part and the politicians now need to do their part.

Carl Weinberg from High Frequency Economics added Draghi was "saying we need fiscal policy to get the ball moving again, to move us back to the range where monetary policy can work."

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