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, at the business leadership forum, organised by ie university, madrid, 30 october 2023. * * * recent economic developments the euro area economy remains weak. 1 foreign demand is subdued and tighter financing conditions are increasingly weighing on investment and consumer spending. the services sector is also losing steam, with weaker industrial activity spilling over to other sectors, and the impact of higher interest rates is broadening. recent indicators point to continued weakness in the near term. the labour market has been a bright spot supporting the euro area economy and has, so far, remained resilient to the slowdown in growth. but there are signs that it is turning. while unemployment stood at 6. 4 % in august, the lowest level recorded since the start of the euro, fewer new jobs are being created, including in services, which suggests that the cooling of the economy is gradually feeding through to employment. moreover, the risks to the growth outlook are tilted to the downside. growth could be lower if the effects of monetary policy transmission turn out stronger than expected, or if the world economy weakens further. furthermore, major geopolitical risks have intensified and are clouding the outlook. this may result in firms and households becoming less confident and more uncertain about the future, and dampen growth further. at the same time, while remaining significantly above our medium - term target of 2 %, recent inflation data have been in line with our expectations, confirming that our monetary policy is working. inflation dropped sharply to 4. 3 % in september and the fall was visible in all its major components. food price inflation decreased again, but – at 8. 8 % – remains high by historical standards. energy prices fell by 4. 6 %, but have risen again more recently, and have become less predictable in view of the new geopolitical tensions. inflation excluding energy and food also dropped to 4. 5 % in september, and we see continued declines in measures of underlying inflation. however, domestic inflation remains strong owing to the growing importance of wage pressures. the inflation outlook remains surrounded by significant uncertainty. in particular, heightened geopolitical tensions could drive up energy prices and higher than anticipated increases in wages could drive inflation higher. by contrast, a stronger transmission of monetary policy or a worsening of the global economic environment would ease price pressures. longer - term interest

##gating, with the outlook for inflation and economic activity being rendered particularly uncertain owing to both the legacy effects of previous shocks and renewed risks. in addition, the current hiking cycle is unique, with the sequence of rate hikes being unprecedented in speed. taking a longer - term view, structural changes in economic interactions may also exert upward pressure on inflation in a more fundamental way. at the global level, changes in trade patterns and energy markets, rising climate - related risks and the commitment to decarbonise the economy, as well as geopolitical risks, may have longer - lasting implications, which could pose greater challenges to price stability. for these reasons, any assessment based on comparisons with historical regularities and model - based estimates must be complemented by real - time monitoring of the transmission to financial and economic conditions. while there are signs of the strength of the first leg of the transmission, a substantial share of the transmission from financing conditions to the real economy is expected to still be in the pipeline, subject to longer lags. this reinforces the need for a data - dependent approach to determining the appropriate level and duration of a restrictive monetary policy stance. 1 darracq - paries, m., motto, r., montes - galdon, c., ristiniemi, a., saint guilhem, a. and zimic, s. ( 2023 ), " a model - based assessment of the macroeconomic impact of the ecb's monetary policy tightening since december 2021 ", economic bulletin, issue 3, ecb. 2 see, for example, aastveit, k. a., natvik, g. j. and sola, s. ( 2017 ), " economic uncertainty and the influence of monetary policy ", journal of international money and finance, vol. 76, pp. 50 - 67. 4 / 4 bis - central bankers'speeches