Luis de Guindos: The euro area economic outlook and the current monetary policy stance Remarks by Mr Luis de Guindos, Vice-President of the European Central Bank, at the European Banking Federation Committee meeting, Frankfurt am Main, 20 February 2020. * * * It is a pleasure to be here today at the European Banking Federation. I will use this opportunity to provide an overview of the economic situation in the euro area and on the current monetary policy stance. Recent economic developments Although the expansion has moderated in the recent quarters, euro area growth continues to be supported by the underlying strength of domestic activity, bolstered by strong labour market dynamics and favourable financing conditions. After the gradual worsening over the past two years, the outlook for global economic activity outside the euro area has been showing some signs of improvements recently. The global sentiment indicators, like the manufacturing output Purchasing Managers’ Index, stabilised in the past few months following its persistent deceleration since early 2018. Nevertheless, international trade remains weak and uncertainty around the future trading relationships among major global partners remains elevated, despite receding somewhat after the US-China “phaseone” agreement. This global weakness continues to weigh on manufacturing that remains a drag on the euro area growth momentum. Some forward-looking survey indicators show tentative signs of mild improvements. For example, the Purchasing Managers’ Index manufacturing business expectations in twelve months’ time has increased in the five consecutive months through January.

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.