Klaas Knot: Partly cloudy skies in the euro area, with a silver lining
Speech by Mr Klaas Knot, President of the Netherlands Bank, at the Group of Thirty's 39th Annual International Banking Seminar, Washington DC, 26 October 2024.
The views expressed in this speech are those of the speaker and not the view of the BIS.
Good morning everyone,
It is my pleasure to present the euro area perspective in this panel session on the Global Economic Outlook. The latest PMI releases point to steady global growth. Weakness in manufacturing is compensated by strong growth in the service sector.
However, as you can see in the left hand chart, the economic situation in the euro area is less favorable than the global average. The current mood is a bit like October weather in Amsterdam. Not as bad as some people would have you believe, but definitely not great either.
Economic growth in the euro area has been sluggish for two years now. As shown in the right hand chart, especially domestic demand has been weak. Initially, this could be explained by falling real wages. Over the past two years, however, wages have largely been catching up with prices. The short-term outlook is pointing to slow growth while economic sentiment remains subdued and the household savings rate is still higher than before the pandemic. Looking further ahead though, we do expect the economy to strengthen. Rising real incomes will allow households to consume more and the gradually fading effects of restrictive monetary policy will support consumption and investment.
Zooming in on the various member states, confidence is not low everywhere. Economic sentiment is significantly above the long-term average in for instance Spain, Portugal and Greece. The mood is especially good in the service sector, benefiting from the reallocation of consumption from goods to services after the pandemic. This growth boost is particularly visible in tourism and hospitality. But also other sectors of the economy perform relatively well in these countries.