ewald nowotny : the rebalancing challenge in europe – perspectives for central, eastern and southeastern europe opening remarks by prof dr ewald nowotny, governor of the central bank of the republic of austria, at the conference on european economic integration ( ceei ) 2014, vienna, 24 november 2014. * * * your excellences, dear governors, ladies and gentlemen, i am delighted to welcome you to the annual conference on european economic integration ( ceei ) hosted by the oesterreichische nationalbank. thank you for coming to vienna. many of you have traveled long distances to be with us today – a fact that highlights the importance of the topic we are going to discuss over the next two days : “ the rebalancing challenge in europe – perspectives for central, eastern and southeastern europe ( cesee ). ” what do we mean by “ rebalancing ”? obviously, the term signifies a readjustment from a state of imbalance – an economic imbalance in our case. typically, economists distinguish between external and internal imbalances. by external imbalances, they usually mean disequilibria ( mostly deficits ) in the current account which, if protracted, might lead to an unsustainable net international investment position. the underlying reason for a current account deficit can differ from case to case ; it can be trade - induced via export weaknesses, indicating a lack of competitiveness ; it could also reflect strong import demand due to unsustainably high growth. this leads us directly to internal imbalances, which comprise accumulated private and public debt, asset price bubbles, unemployment or excessive inflation ( or deflation ). one could also add sectoral or distributional imbalances contributing to uneven growth. internal and external imbalances are often interlinked, but their interrelation is not always clear - cut. this year ’ s ceei coincides with three anniversaries, which are crucially linked to our conference topic : 25 years since the fall of the berlin wall, 15 years since the creation of economic and monetary union ( emu ) and 10 years since the – so far – biggest round of eu enlargement. this is not only a reason for celebration but also an occasion for honest stocktaking and thoughtful reflection. i think that the developments that followed these events have been broadly successful. for an overwhelming majority of europeans, the last quarter of a century brought hugely improved living standards

##18 ). market rates also reflect growing expectations of delay and moderation in the rate - hike cycle. accordingly, benchmark bond yields fell during the second quarter and continued to hover around historic lows despite the increased risk aversion ( figure 19 ). the downturn in market rates was also driven by the improved inflation outlook. the flattening of the yield curve in july compared to april indicates that policy rate - expectations of market players have been revised downwards ( figure 20 ). the downslide was more significant in market rates than in inflation expectations during the second quarter, pushing medium - term real rates down to historic lows ( figure 21 ). yet i would like to underline that real market rates in turkey did not decouple substantially from other emerging economies ( figure 21 ). the ongoing downward trend both in market rates and the tightness in credit conditions contributed to the maintenance of low levels in loan rates. no remarkable change is observed in loan rates in the second quarter despite the continuing improvement in credit markets ( figure 22 ). 3. inflation and monetary policy outlook having summarized the central bank ’ s monetary policy stance as well as the effects of this stance on the markets, i would like to share with you the economic outlook underlying our revised forecasts. the first - quarter data on the gdp were largely consistent with the outlook presented in the april inflation report. accordingly, the gdp expanded by 11. 7 percent year - on - year during the first quarter of 2010 ( figure 23 ). this increase was driven by the low level in the same quarter of 2009. meanwhile, in seasonally adjusted terms, the gdp followed a nearlyhorizontal course by growing by 0. 1 percent quarter - on - quarter ( figure 24 ). the weak global economy continued to weigh on economic activity and employment in external demand - oriented sectors. the recovery in the private sector gained stability in line with our forecasts. in this respect, the largest contributors to growth in the first quarter became private consumption expenditures and the change in stocks. this was also affected by the low base in the same quarter of 2009 ( figure 25 ). meanwhile, public expenditures contributed to growth by – 0. 8 points ( figure 26 ). recent domestic demand indicators show that private consumption demand continues to grow and it will run above pre - crisis levels in the second quarter. meanwhile, despite the rebound in the first quarter, investments remain below pre - crisis levels. these developments indicate that the total final domestic demand