Philip R Lane: Reflections on monetary policy

Keynote speech by Mr Philip R Lane, Member of the Executive Board of the European Central Bank, at Bloomberg, London, 16 September 2019.

The views expressed in this speech are those of the speaker and not the view of the BIS.

I will divide this speech into two parts. First, I wish to review the current economic and financial environment. Second, I will discuss the monetary policy decisions taken by the Governing Council in last week's meeting.

The euro area economy

Incoming information is signalling a more extended slowdown in euro area growth dynamics than previously expected. As I will discuss, this slowdown is mainly due to external developments. While domestic demand is resilient, persistent uncertainties related to protectionist policies and geopolitical factors are taking a toll on economic sentiment and are clearly weighing on the euro area manufacturing sector.

On the international front, the latest survey data indicate that global activity remains subdued. This is the case in both emerging market and advanced economies, which suggests that a common factor is at play. The manufacturing sector has been affected most strongly, in particular for capital and intermediate goods, as well as for durable consumption goods. Since these goods are highly tradable, their production is sensitive to developments in international trade, which continues to be weak. Global trade and, consequently, euro area foreign demand have slowed substantially in recent quarters.