mario draghi : euro area economic outlook, the ecb ’ s monetary policy and current policy challenges statement by mr mario draghi, president of the european central bank, prepared for the twenty - ninth meeting of the international monetary and financial committee, washington dc, 10 april 2014. * * * i would like to focus on the euro area economic outlook, the ecb ’ s monetary policy and current policy challenges. the recovery in the euro area is ongoing. euro area real gdp has now increased for three consecutive quarters and recent survey data are consistent with a continuation of this trend. looking ahead, a strengthening contribution from domestic demand should materialise, supported by our accommodative monetary policy stance, ongoing improvements in financing conditions working their way through to the real economy, and the progress made by euro area countries in terms of fiscal consolidation and structural reforms. in addition, real incomes are positively influenced by moderate commodity price developments, in particular lower energy prices. economic activity is also expected to benefit from a gradual strengthening of demand for euro area exports. at the same time, however, unemployment in the euro area remains high, even if labour markets have shown first signs of improvement, and, overall, unutilised capacity is sizeable. moreover, the necessary balance sheet adjustments in the public and private sectors will continue to weigh on the pace of the economic recovery. the risks surrounding the euro area economic outlook continue to be on the downside. they relate to geopolitical risks and an insufficient implementation of structural reforms in euro area countries as well as to developments in global financial markets and in emerging market economies. recent information remains consistent with our expectation of a prolonged period of low inflation that will be followed by a gradual upward movement in consumer prices ( hicp inflation rates ) during 2015 to reach levels closer to 2 % towards the end of 2016. the gradual decline in euro area inflation rates since last summer primarily reflects negative contributions from energy prices as well as a substantial fall in unprocessed food price inflation. at the same time, medium to long - term inflation expectations remain firmly anchored in line with our definition of price stability. both upside and downside risks to the outlook for price developments remain limited, and broadly balanced over the medium term. in this context, the possible repercussions of geopolitical risks and exchange rate developments will be monitored closely. the ecb ’ s monetary policy stance continues to be geared towards maintaining the degree of monetary accommodation warranted by the outlook for price

interest rate expectations : a study of six central banks ’, in c. kent and s. guttmann ( eds ), the future of inflation targeting, reserve bank of australia, sydney, pp 108 – 134, for an example of empirical work that studies how financial market prices respond to policy announcements and other forms of communication. responses to rba communications are little different to those of other central banks, suggesting that the rba is conveying a similar amount of information to the market as other central banks. ( paper available at http : / / www. rba. gov. au / publicationsandresearch / conferences / 2004 / connolly _ kohler. pdf. )'in reaching its decision [ to lower rates ], the board carefully weighed one other factor, namely the rapid pace of borrowing by households and the associated pressure on house prices. a further reduction in interest rates runs some risk, at the margin, of unnecessarily boosting this trend in the short term. but this risk has to be set against those which would come over the medium term from not responding to the likely effects of the continuing weakness abroad. on balance, the board ’ s judgement is that prospects for maintaining the economy ’ s good mediumterm performance will be improved by today ’ s action.'by the middle of 2002, with financial conditions at home and abroad quite expansionary, it seemed pretty clear that the worst of the danger of economic weakness was past. the australian economy was in fact growing quite strongly, and global conditions were recovering. hence the balance of risks was shifting : we were moving from a period in which it might have been a costly mistake not to let rates fall, into one where we were more likely to get into trouble by holding rates down, than by lifting them. the risk of potential problems of rates being left at generation lows was featured in the press statements announcing rate rises in may and june 2002. as we all know, the process of'normalising'interest rates turned out to be quite a lengthy one. this was partly because there were periodic bouts of renewed pessimism about global prospects – strange as it may seem, it is only three years ago that many people were seriously talking about the possibility of deflation in the united states, a far cry from the concerns being voiced more recently. 6 those concerns faded and were replaced by rising energy and resources prices, which history suggests can be associated with wider inflation pressures. but at the same time,