Philip R Lane: The ECB's monetary policy in the pandemic - meeting the challenge

Speech by Mr Philip R Lane, Member of the Executive Board of the European Central Bank, at the (virtual) 62nd NABE Annual Meeting "Global Reset? Economics, Business, and Policy in the Pandemic", 6 October 2020.

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

I will provide a brief assessment of the macroeconomic outlook, discuss the ECB's monetary policy response to the pandemic crisis and explain our current monetary policy challenge.

The macroeconomic outlook

We expect about half of the cumulative decline in output in the first half of the year to have been reversed during the third quarter. Compared with the trough, this initial recovery phase is visible across a wide range of economic indicators.

That said, the euro area economy is still operating far below its pre-pandemic level. While this in part can be attributed to ongoing supply-side interruptions, the speed of the recovery is also held back by a lack of buoyancy in demand conditions. Meanwhile, the resurgence in infection rates (and the associated public health measures) is posing renewed challenges, especially for those sectors most affected by social distancing. Reflecting this, the momentum in the services sector has been slowing down since August, while the services business activity PMI fell back into contractionary territory in September. As a result, given the importance of services to the euro area economy, the euro area composite PMI also declined, even if it remained in expansionary territory at 50.4.