In its assessment last week, the Governing Council of the ECB concluded that, amid the prevailing uncertainty, growth in the euro area will continue and remain broadly consistent with its previous forecast. The subdued outlook for the economy and rise in uncertainty will also slow the adjustment of inflation towards the price stability objective.

The Governing Council took the decision to strengthen its monetary accommodation. Accordingly, the Governing Council announced that it now expects the key ECB interest rates to remain at their present levels at least through the first half of 2020. It had previously announced it expected the key rates to remain at their present levels at least through the end of 2019.

The Governing Council reaffirmed its decision to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when the Governing Council starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

The Governing Council also specified the interest rates to be applied on the third series of targeted longer-term refinancing operations (TLTRO III). The new refinancing operations will preserve favourable bank lending conditions—for both households and firms—and enhance the transmission of monetary policy.

‘The Governing Council reaffirmed its commitment to the price stability mandate by extending its commitment to holding the key ECB interests rates at their current low levels at least through the first half of next year. This dispels some of the uncertainty surrounding the future interest rate path,’ stated Bank of Finland Governor Olli Rehn at the press briefing for the publication of the latest issue of the journal Euro & talous.

The Governing Council’s monetary accommodation is bolstering economic activity in Finland, too. The expansion of the Finnish economy continues, although at a slower pace than in recent years. Finland’s public finances are in better health than they were a few years ago. In the coming years, however, they will be strained by growing age-related expenditure. Thus the long-term sustainability gap in the Finnish public finances remains sizeable. ‘It is important that proactive measures are taken to strengthen the public finances when the economy is not in recession,’ stated Governor Rehn.

The fiscal balance is closely linked to the development of employment, which has seen favourable growth momentum in recent years. Over the long term, Finland’s employment rate should be raised to a good Nordic standard. In Sweden, Norway and Denmark employment stands at about 75–78%. ‘No single policy measure alone is capable of bringing employment up to standard. Instead, a battery of reforms is needed’, noted Governor Rehn.

Future collective labour agreements will also make a significant contribution to creating conditions conducive to employment. It is worth noting that the collective labour agreement of one industry will have a substantial impact on the production costs of another. This dynamic highlights the importance of coordination in wage formation. Export industries face direct international competition, and they source a large portion of their production inputs from domestic suppliers. ‘It makes sense that the collective agreements negotiated for the export industries should serve as a reference for cost developments, and that other domestic industries should normally refrain from exceeding them,’ emphasised Governor Rehn.