​Once the financial crisis had developed into a full-blown global economic crisis six years ago, global growth initially depended on the emerging economies. Then confidence about growth in the advanced economies gathered strength and recovery also got underway in the euro area economy. With the increase in geopolitical tensions, however, the growth outlook has weakened over the past summer.

The euro area inflation outlook and growth in lending have remained weak and economic growth has faltered. Because of this, in September 2014, the Governing Council of the ECB lowered the interest rate on the Eurosystem main refinancing operations by 0.10 of a percentage point to 0.05%, and the rate on the deposit facility to –0.20%. The previous reduction had been in June 2014. In addition to this, the range of monetary policy instruments was enlarged. ‘The aim of the recent decisions of the ECB Governing Council is to support lending to the real economy and further enhance the transmission of monetary policy. Monetary policy is in its part supporting growth and employment,’ stressed Bank of Finland Governor Erkki Liikanen today at the press briefing for the latest edition of the journal Euro & talous.

Purchase programmes for asset-backed securities and covered bonds will be launched in October 2014. The measures decided now together with the targeted refinancing operations with a maximum maturity of 4 years that will commence in September 2014 will expand the Eurosystem balance sheet and increase the amount of liquidity in the banking sector. ‘Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council has underlined that it is unanimous in its commitment to using additional unconventional instruments,’ said Governor Liikanen.

Enlarging the range of monetary policy instruments underlines the importance of open decision-making. ‘Publication of the accounts of monetary policy discussions will make it easier for citizens and markets to deepen their understanding about the Eurosystem decision-making in monetary policy,’ said Governor Liikanen.

The Bank of Finland forecasts that the global economy will in 2014 grow very slightly more slowly than previously forecast. Growth is expected to accelerate to 3.7% in 2015. The US economy will grow at around 3% per annum in 2015 and 2016, compared with growth in the EU21 countries of under 2%. The growth forecast for Russia in 2015 has been lowered to 0.5%.

The differences in growth outlook are also apparent in the Bank of Finland’s inflation forecasts. In the EU21, inflation in 2015 is expected to be around 1%. The forecast is based on the continued anchoring of inflation expectations and a gradual recovery in domestic demand. For the United States, inflation is forecast to remain at around 2% in 2015.

On the whole, growth has been sluggish, nor do the forecasts hold out any hope of a strong recovery. Monetary policy alone cannot resolve the crisis; all sectors of economic policy need to be harnessed. ‘In the current crisis, the countries that have progressed furthest with structural reforms to improve the functioning of their product and labour markets have achieved the highest growth figures,’ underlined Governor Liikanen.