NEWS Release - Hearing of the Committee on Economic and Monetary Affairs of the European Parliament - Introductory Statement by Mario Draghi, President of the ECB, at the ECON committee of the European Parliament, Brussels, 20 November 2017
Mr Chairman - Honourable Members of the Economic and Monetary Affairs Committee - Ladies and gentlemen. I am glad to be back at the European Parliament for my last hearing of this year.Since we last met, the ECB Governing Council has taken important decisions on the recalibration of its monetary policy instruments beyond the end of the year.
Therefore, in my remarks today, I will first discuss the outlook for the euro area economy and the recalibration of our monetary policy measures.
Then, at the request of this committee, I will discuss the role of TARGET2 in supporting financial integration and the implementation of our monetary policy, which in turn have implications for interpreting TARGET balances.
The economic outlook
The economic expansion remains solid and broad-based across countries and sectors in the euro area, mainly supported by domestic demand.
According to the recent Eurostat flash estimate, real GDP growth has continued in the third quarter at a rate of 2.5% year on year. This amounts to four-and-a-half years of continuous quarterly expansion, and the latest survey data point to unabated growth momentum in the near term. GDP growth is also increasingly broad-based across countries and sectors. The dispersion of GDP growth rates across euro area countries has fallen to its lowest level since 1997, caused by a general upward convergence.[1]
The labour market continues to benefit from the recovery and the deep and painful employment losses recorded during the crisis have now been offset, at least in the aggregate. The number of people unemployed in the euro area declined from 18.6 million in the second quarter of 2014 to 14.6 million in the last quarter. Relative to past patterns, employment growth has been broad-based across countries and sectors. 16 of the 19 euro area countries have experienced positive annual employment growth since mid-2014 and employment has been increasing in about 60% of sectors, compared with zero in mid-2014.
These employment gains, together with increasing household wealth, are supporting the private consumption outlook. Business investment also remains on an upswing, aided by improvements in corporate profitability.
Our monetary policy measures have played a key role in supporting both consumption and investment demand by ensuring favourable financing conditions for euro area firms and households. Since end-May 2014, bank lending rates for non-financial corporations, for instance, have fallen by around 120 basis points and those for households by around 100 basis points. Lending rates for very small loans, which can be taken as a proxy for loans to small and medium-sized enterprises (SMEs), have declined by almost 190 basis points. The significant improvement in funding conditions for SMEs is especially encouraging as they provide two-thirds of total private sector employment in the euro area.
This improvement in financing conditions has been accompanied by reduced heterogeneity across countries in bank lending rates. For example, the difference between rates for firms in euro area countries most severely affected by the crisis versus the other countries has narrowed by around 100 basis points since mid-2014.[2]
Despite the firm economic recovery, inflation dynamics have yet to show convincing signs of a self-sustained upward trend. Headline inflation was 1.4% in October and is expected to temporarily decline towards the turn of the year, mainly owing to a weaker energy component as a result of base effects.
Underlying inflation pressures are still subdued as labour market slack remains significant. The improvements in labour markets that we have observed still need time to translate into more dynamic wage growth.
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