luis de guindos : the euro area economy and our monetary policy stance remarks by mr luis de guindos, vice - president of the european central bank, during the instituto de empresa ( ie ) business leadership forum at the ie business school, madrid, 10 june 2019. * * * recent economic developments despite the somewhat better than expected data for the first quarter, in part due to temporary factors, the most recent information indicates that global headwinds continue to weigh on the euro area outlook. in particular, world trade remains subdued due to rising trade tensions and the global growth momentum has slowed somewhat, mainly on account of the weakness in manufacturing. moreover, downside risks have increased on account of the re - escalated trade dispute between the us and china. also, uncertainty surrounding brexit is prolonged and fragilities in emerging market economies remain. while inflation is expected to rise gradually due to tightening labour markets and rising wages, current dynamics of underlying inflation remain muted. it is against this background, that the governing council decided a number of policy measures at its last meeting, including an extension of its forward guidance on policy interest rates, a confirmation of the reinvestment policy and favourable pricing conditions for our new series of targeted longer term refinancing operations ( tltro iii ). euro area real gdp growth came in at 0. 4 % quarter - on - quarter in the first quarter of 2019, surprising somewhat on the upside. the better than expected outcome was in part driven by temporary factors, such as the mild weather supporting a pick - up in construction and some sector specific developments. economic indicators suggest that domestic demand remains resilient, as signalled by the growth of consumption, which grew 0. 5 % quarter - on - quarter in the first quarter of the year, and investment, which grew by 1. 1 % during the same period. while first quarter growth was somewhat stronger than previously anticipated, incoming data and survey information point to somewhat more moderate growth over the next few quarters. this reflects the ongoing weakness in international trade in an environment of prolonged global uncertainties, which are weighing, in particular, on the euro area manufacturing sector. in fact, some leading indicators such as manufacturing pmi and the ecb indicator on euro area new orders have declined recently, confirming weakening dynamics in the euro area manufacturing sector. at the same time, the euro area services and construction sectors are showing resilience and the labour market is continuing to improve. looking forward,

- see for example “ central banks have ‘ king canute ’ theory of inflation, says former governor ”, the guardian, 23 november 2021. see “ monetary policy after the energy shock ”, fabio panetta, member of the executive board of the ecb, 16 february 2023, and bloomberg interview with isabel schnabel, member of the executive board of the ecb, 15 february 2023. recent experience of large positive employment gaps ( negative unemployment gaps ) raising inflation significantly provides strong evidence for a non - linear phillips curve. central banks should therefore consider incorporating downward wage and price rigidity and non - linear phillips curves into their macroeconomic models. see “ 25 years of excess unemployment in advanced economies : lessons for monetary policy ”, joseph e. gagnon and madi sarsenbayev, peterson institute for international economics, working paper 22 - 17, october 2022 see schnabel, 2023 ( op. cit. ) to give one example from south africa, core goods prices are sharply higher on the back of imported automobile prices. is this a permanent shift in pricing power on the part of manufacturers? reinforcing ways – less a wave in a pond and more a tsunami building up as it gathers energy. 12 i am also not sure that we can simply say that labour market cost pressures are primarily a result of labour force participation rates that fell with the pandemic and will now rise again, easing wages. a case could be made that the drawing in of elderly workers in the pre - pandemic period reflected high demand and a shift away from a preference for leisure because, for various reasons, returns to work had risen and returns to savings had fallen, alongside other kinds of factors. 13 as i turn to central bank policy more directly, our inflation dynamics discussion also suggests that we may need to unlearn some lessons about cyclical policy from the gfc period. rising debt with inflation and interest rates weakens the utility of fiscal and monetary expansion to address any source of slowing growth. this idea of policy inefficiency is a mainstay of emerging market policy thinking, but less commonly articulated in advanced economies. 14 this is not to say that central banks could have or should have stepped back from action in the pandemic, but it does prompt consideration of challenges to central bank policy in the wake of the pandemic. inefficiencies in policy transmission and new trade - offs as inflation increased, central banks withdrew