constantinos herodotou : developments in the european economy and the effect of monetary policy welcome speech by mr constantinos herodotou, governor of the central bank of cyprus, at the conference at the central bank of cyprus on the occasion of the official visit of the president of the deutsche bundesbank, dr. joachim nagel, nicosia, 28 november 2023. * * * esteemed members of the parliament, distinguished guests, i would like to start with expressing my sincere appreciation and thanks to my dear colleague at the ecb governing council, governor joachim nagel, for being with us today to share his valuable insights and views on the euro area economy. recent economic dynamics indicate that we are witnessing a significant transition in the euro area in the post - pandemic era. in 2022, the euro area experienced a notable shift in demand, with a move away from goods and towards services. this shift led to a deceleration in the manufacturing sector. in 2023 this trend continued, resulting in contractionary quarter - over - quarter dynamics. the consequences of this shift were profound, influencing the overall gdp growth in the euro area. conversely, the services sector played a pivotal role in supporting gdp growth in 2022. driven by robust demand for travel and leisure services, the sector registered significant growth. this resurgence was particularly pronounced in the contact - intensive services, which grew by an impressive 8. 1 % in 2022, compared to 3. 5 % in the non - contactintensive services. however, the initial drive in the services sector has shown signs of abating in 2023. more specifically, the purchasing managers'indices, known as pmis, a monthly measure used to track the direction of economic conditions and trends in the manufacturing and services sectors, indicate a downturn in services activity from august 2023 onwards. the resilience of the services sector that was reflected until summer 2023 in the pmi readings, are closely linked to the resilience exhibited in the labour market. labour income has been a key factor in preserving the purchasing power of households and thus the growth dynamics. the job retention schemes implemented during the pandemic, played a crucial role in safeguarding the productive capacity of the economy, thus moderating the negative economic impact. as a result, despite the significant gdp drop in 2020, as a consequence of the lockdowns, employment fell only by 1. 4 %. the strong and flexible labour market, safeguarded the res

the area of payments, amending the payment services directive, and also proposing a new payment services regulation. these developments are important to strengthen further the resilience of supervised entities, combat and mitigate payment fraud and level the playing field between banks and nonbanks. furthermore, the enactment of the digital operational resilience act ( dora ) of the european union earlier this year, is a critical milestone and accomplishment. the european banking authority and the other european supervisory authorities, have a critical role to play in its smooth implementation. dora introduces advanced ict risk management requirements, threat - led penetration testing and, importantly, oversight of third party providers, including bigtechs. 2 / 3 bis - central bankers'speeches going forward, legislators and supervisors need to ensure that the existing and prospective legal framework does not leave significant room for undetected risks, while the level playing field should be strengthened. in addition, mechanisms should be developed at the global level to enable supervisors to cooperate effectively across borders. in this way, the stability of the financial system will be safeguarded, while combating money - laundering risks and protecting consumers. i take this opportunity to say a few words about the innovation hub that the central bank of cyprus set - up earlier this year. we see the innovation hub as a vital platform to encourage, promote and support fintech innovation, while maintaining regulatory oversight. the innovation hub can serve as a bridge between regulators, fintech startups and established financial institutions, facilitating dialogue, collaboration and knowledge - sharing. it provides a safe space for fintech firms to enter into a confidential dialogue with the central bank of cyprus, presenting their innovative products and business models and receiving feedback on regulatory requirements. the hub also enables the central bank of cyprus to gain valuable insights into emerging technologies, risks and trends, allowing us to adapt our regulatory framework effectively. an equally important initiative is the project on " digital onboarding " for the banking sector, which was launched by the central bank of cyprus, despite the fact that it is not within our duties to do so. we initiated this project, as we are convinced it brings multiple benefits to banks and to the real economy. in parallel to this, and with the aim to address the risks associated with the general digital transition, the central bank of cyprus has already required licensed institutions to carry out a series of actions on an annual basis, including annual anti - intrusion testing of their critical systems to address cyber risks. the importance of cyber risk has increased over the past