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Euro area inflation would have been negative in 2015 and 2016 absent the ECB action since 2014. The impact of this action on inflation, measured by the HICP (Harmonized Index of Consumer Prices), is around +0.3 percentage point (pp) as early as 2015 and +0.8 pp in 2016 according to staff’s estimates of the Eurosystem (the ECB and the 19 national central banks). The cumulated effect on 2015-18 of measures taken in 2014-16 reaches almost +1.6 pp.
Figure 1. Euro area inflation and the estimated effect of monetary policy Note: Inflation is year-on-year percentage change in HICP. The green line represents the realized annual average of inflation. The pink area represents the inflation gain brought by monetary policy.
The ECB unconventional monetary policy has largely succeeded in decoupling nominal interest rates in the euro area from those in the United States since 2014, as warranted by their respective macroeconomic conditions. This has been especially true since the rise in US interest rates after the election of Donald Trump, particularly for rates up to 5 years.
Figure 1: 5 year interest rates (Euro area AAA, US, UK and French treasuries, in %) Sources: Bloomberg and ECB
Over the past five years, global trade and global production have grown at similar rates, whereas before 2008, global trade grew at twice the rate. This slowdown in global trade is largely due to China’s rebalancing towards its domestic demand and its services sector. If we exclude the decline in trade related to increasing protectionism, near-parallel growth for global trade and production is the new “normal.”
Standard of living has slowed continuously over the past decades in most developed economies, mainly due to a productivity slowdown. Have we entered a period of secular stagnation? In fact, many countries still have a significant catch-up potential, even in Europe, but to achieve this catch-up, the implementation of structural reforms is required.