yannis stournaras : european and greek economic developments and prospects speech by mr yannis stournaras, governor of the bank of greece, at the foundation for economic & industrial research, konrad adenauer stiftung ( kas ) in greece & cyprus, athens, 3 february 2020. * * * ladies and gentlemen, it is a great pleasure for me to be here today among esteemed colleagues and friends, the vicepresident of the european central bank luis de guindos and the minister of finance christos staikouras, and to share my thoughts on the european and greek economy developments and prospects. 1. global and euro area economic developments the global economy is experiencing a synchronised slowdown ; however, some signs of stabilisation have recently emerged, somewhat boosting market sentiment. the imf recently revised down its forecasts, but still projects a modest expansion for 2019 – 2021 : global growth is projected to rise from 2. 9 % in 2019 to 3. 3 % in 2020 and to 3. 4 % in 2021. despite some positive news on trade ( i. e. the us - china “ phase one ” trade deal ), diminishing concerns of a no - deal brexit and the continuation of accommodative monetary policies across the globe, the projected recovery is uncertain and the risks to the global economy remain on the downside. geopolitical risks, as well as a likely intensification of trade tensions, could decrease confidence in international markets, increase risk aversion and worsen financial conditions, especially for the most vulnerable emerging market economies. stressed valuations in a number of assets in certain jurisdictions according to some benchmark metrics also add to the risks of a possible correction. finally, the outbreak of the coronavirus poses a new risk. as regards the euro area, growth remains weak, driven by the negative effect of the world trade slowdown on manufacturing and investment. recent macroeconomic data for the final quarter of 2019 for a number of euro area meber - states are a source for concern. according to the december 2019 eurosystem staff macroeconomic projections, a mild expansion is projected for the euro area over the period 2020 – 20211, while annual hicp inflation in the euro area will remain at the present low levels in 2020 and will increase only marginally in 2021. 1. 1 monetary and fiscal policy in the euro area the governing council of the ecb recently reiterated the

the economy. as we have seen, second - round effects can be more pronounced in 4 / 7 bis - central bankers'speeches economies with tight labour markets, rigid wage - setting mechanisms and less competitive product markets. additional factors, such as credible monetary policy frameworks, well - anchored inflation expectations, lower energy intensity in production and a low - inflation environment, reduce the likelihood of wage - price spirals in light of commodity price shocks. the economic effects of commodity price shifts also vary depending on the type of the commodity hit. food price changes have stronger second - round effects, driving core inflation and wages higher as these are more salient items in the consumption basket. oil price shocks lead to a steep decline in durable consumption, particularly in sectors closely linked to energy, like automotives and construction. these asymmetries highlight the need for a careful assessment of the monetary policy response to each type of commodity price shock. faced with heightened uncertainty and volatile commodity prices, monetary policy must remain agile and flexible. this suggests an approach that balances forward - looking components, like inflation projections, with current data on the dynamics of underlying inflation and the strength of monetary policy transmission. it also calls for a more formal analysis of risks embedded in our monetary policy frameworks and communication. let's also not forget that commodities are both physical and financial assets. financial markets are becoming increasingly sensitive to abrupt commodity price shifts partly due to the growing financialisation of commodity markets. this trend can amplify uncertainty, raise risk premia, intensify liquidity pressures and result in sharp exchange rate adjustments, heightening financial stability risks. as we converge to our 2 - percent target for inflation in a sustainable way, which i expect will be achieved early next year, our focus may need to turn to addressing sluggish growth. this change in focus will be required to guard against the possibility that lower growth leads to an undershooting of our inflation objective. although we have not had any indications of a hard landing, the markets are extremely sensitive to disappointing growth readings. if negative surprises for growth come in and we fail to unwind our restrictive monetary - policy stance at the appropriate pace, unnecessary market turbulence could be induced, negatively impacting economic and financial stability. should some of these risks materialise, thus compromising growth, the disinflation process will be reinforced, likely driving inflation below the 2 - percent target in the medium term and endangering the soft - landing scenario. the september reading