In current conditions of uncertainty, investors – reading our rate guidance – tend to anticipate a more extended period of time to the date of a rate hike. By the chained structure of our forward indications of all instruments, this automatic adjustment mechanism extends the horizons for full reinvestments too, and thus reinforces the impact of rate guidance on longer-term interest rates. Moreover, our new series of long-term refinancing operations (TLTRO-III), which started in September 2019 and will end in March 2021, help to ensure favourable bank funding conditions in support of an efficient bank-based transmission of monetary policy in the euro area. The combination of our monetary policy measures continues to prove effective in stabilising the economy and in ensuring very favourable financing conditions. This is evident in the successful pass-through of our policy measures to financing conditions that matter for the real economy. In fact, bank lending rates for both firms and households have continued to decline in the recent months and remain close to historical lows. Loan growth to non-financial corporations, while moderating in tandem with the slowdown in the economy, is still supporting capital creation and the mortgage market. Our recent Bank Lending Survey confirms that credit supply conditions are favourable. 2/3  BIS central bankers' speeches  Overall, the present monetary policy stimulus lends substantial support to growth and inflation developments, buffering to a large degree the negative impulse from global factors.

Likewise, the European Commission’s Economic Sentiment Indicator improved for the third consecutive month in January. However, the latest figures on industrial output in the euro area are a reminder that overcoming the manufacturing recession that has weighed on the euro area growth performance in the last couple of years is still challenging. We draw some comfort from the fact that, as yet, we do not see spillovers from the manufacturing weakness to the service sector. In the third quarter of 2019, euro area consumption increased by 0.5% quarter-on-quarter, while resilient retail sales and broadly stable consumer confidence indicate robust consumer spending also in the following months. The services sector continues to be strong and survey indicators remain in expansionary territory. Consumption is supported by solid labour markets dynamics. According to Eurostat’s flash estimates, in the fourth quarter of 2019, employment expanded by 0.3% quarter-on-quarter, while unemployment declined further to 7.4% in December, the lowest level since May 2008. The number of people employed has increased by more than 11 million since its trough in mid-2013. At the same time, while investment is supported by favourable financing conditions, it was curbed by the slowdown in the euro area growth momentum and by the elevated uncertainties over the past quarters. Looking ahead, the underlying fundamentals for a continued though moderate expansion of the euro area economy remain in place, as foreseen in the December 2019 Eurosystem staff projections, which entail annual real GDP increasing by 1.1% in 2020, 1.4% in 2021 and in 2022.