​The euro area economy is expected to grow at a moderate pace in the immediate years ahead. This view is supported by recent Eurosystem staff macroeconomic projections, including the Bank of Finland's forecast for the international economy. The risks to the economic outlook are tilted on the downside and relate mainly to the external environment.

Inflation has remained close to zero for some three years already, but is expected to pick up gradually, supported by monetary policy. The ECB has eased its monetary policy significantly to maintain price stability. The key measures in the pursuit of the price stability objective are the lowering of key interest rates, the expanded asset purchase programme and forward guidance. ‘The Governing Council of the ECB is committed to continuing the measures as long as it deems it necessary from the perspective of price stability. A strong commitment to the maintenance of price stability increases the effectiveness of monetary policy and keeps inflation expectations anchored,’ said Erkki Liikanen, Governor of the Bank of Finland, at today’s press conference.

‘The Governing Council of the ECB monitors and analyses economic developments very closely, based on the most recent incoming data and forecasts, and assesses the impact of its monetary policy measures,’ said Governor Liikanen. It takes time for extensive monetary policy measures to feed through to the real economy.

Monetary policy has played a role in the recovery of the euro area economy. On its own, however, monetary policy cannot generate long-term economic growth. The implementation of structural reforms needs to be stepped up in all euro area countries to boost growth in potential output.

Slower growth in the working-age population and in productivity are dampening the potential for growth globally. Due to the propensity to save of those approaching retirement, the ageing population in the advanced economies, and because the savings ratio is also high in Asian countries, there is strong demand for safe investment instruments. This has contributed to a broad-based decline in real interest rates. ‘All economic policy decision-makers must seek to ensure that slow growth and low inflation do not become long-term,’ Governor Liikanen emphasised.


The package of articles on monetary policy and the international economic forecast will be published in English in October at www.bofbulletin.fi.