vitor constancio : the outlook for the global economy remarks by mr vitor constancio, vice - president of the european central bank, at city week, london, 9 may 2016. * * * this is the full text of a speech delivered in abridged form at city week on 9 may. ladies and gentlemen, i would like to thank the organisers for inviting me to participate in this event. in my remarks today, i intend to outline my assessment for the euro area outlook against the backdrop of developments in the rest of the global economy. in doing so, i will discuss the prospects of the euro area ’ s recovery as well as some of the policy initiatives which are required to make it more lasting and vigorous. the main point that i want to make is that the shock absorption capacity of the euro area has increased. this notwithstanding, the continuation of our accommodative monetary policy needs to be supported by a determined implementation of structural reforms as well as growth friendly fiscal policies in order to strengthen and secure the recovery and with this, accelerate the return of inflation to levels below, but close to, 2 %. prospects for the global economy : cyclical developments in the euro area, the overall data points towards a continued moderate recovery, which is nonetheless still subject to fragilities. according to the latest eu commission projections, euro area real gdp is expected to expand by 1. 6 % this year and 1. 8 % next year ( figures stood at 1. 4 % for 2016 and 1. 7 % for 2017, according to the march 2016 ecb staff macroeconomic projections ). that said, the euro area ’ s emergence from the financial crisis has been protracted, particularly when seen from an historical perspective. it was only in the first quarter of this year that it surpassed its pre - crisis peak level of output. in this quarter, the euro area had a higher growth rate than the u. s. or the u. k., which creates a positive dynamics for this year ’ s overall growth, exceeding recent forecasts. this recovery needs to be seen in a context where legacies from the crisis continue to dampen growth, and the contribution of external demand to the recovery is less assured. the latter reflects a 5 - year string of weakening growth in emerging market economies ( emes ) as well as less favourable than expected out - turns at the turn of this year, at a global level. while domestic demand in the euro area is rising

. alongside a significant rebound in industrial and services production, there are signs of a notable recovery in consumption. recently, momentum has slowed in the services sector compared with the manufacturing sector, which is also visible in survey results for august. the increases in coronavirus infection rates during the summer months constitute headwinds to the short - term outlook. looking ahead, a further sustained recovery remains highly dependent on the evolution of the pandemic and the success of containment policies. while the uncertainty related to the evolution of the pandemic will likely dampen the strength of the recovery in the labour market and in consumption and investment, the euro area economy should be supported by favourable financing conditions, an expansionary fiscal stance and a strengthening in global activity and demand. this assessment is broadly reflected in the september 2020 ecb staff macroeconomic projections for the euro area. these projections foresee annual real gdp growth at 8. 0 % in 2020, 5. 0 % in 2021 and 3. 2 % in 2022. compared with the june 2020 eurosystem staff macroeconomic projections, the outlook for real gdp growth has been revised up for 2020 and is largely unchanged for 2021 and 2022. given the exceptional uncertainty currently surrounding the outlook, the projections include two alternative scenarios, which we will publish on our website following this press conference. overall, the balance of risks to the euro area growth outlook is seen to remain on the downside. this assessment largely reflects the still uncertain economic and financial implications of the pandemic. according to eurostat ’ s flash estimate, euro area annual hicp inflation decreased to 0. 2 % in august, from 0. 4 % in july. on the basis of current and futures prices for oil and taking into account the temporary reduction in the german vat rate, headline inflation is likely to remain negative over the coming months before turning positive again in early 2021. moreover, in the near term price pressures will remain subdued owing to weak demand, lower wage pressures and the appreciation of the euro exchange rate, despite some upward price pressures related to supply constraints. over the medium term, a recovery in demand, supported by accommodative monetary and fiscal policies, will put upward pressure on inflation. market - based indicators of longer - term inflation expectations have returned to their pre - pandemic levels, but still remain very subdued, while survey - based measures remain at low levels. this assessment is broadly reflected in the september 2020 ecb staff macroeconomic projections for the euro area