luis de guindos : presentation of the european central bank annual report 2022 to the committee on economic and monetary affairs of the european parliament introductory remarks by mr luis de guindos, vice - president of the european central bank, to the committee on economic and monetary affairs of the european parliament, brussels, 25 may 2023. * * * i am pleased to be back before the econ committee to present the ecb's annual report for 20221, which we have published today together with our written feedback on the resolution on our activities you adopted earlier this year. 2 these documents, as well as today's hearing, are fundamental for the ecb's accountability relationship with this parliament. we greatly value this dialogue with you as it allows us to reach out to the public, which is especially important in times of high inflation. in my remarks today, i will first focus on the outlook for the economy and the appropriate monetary policy response. i will then discuss the importance of a resilient financial system in supporting the real economy. the outlook for the economy and the appropriate monetary policy response the euro area economy grew modestly in early 2023. activity is being supported by lower energy prices, easing supply bottlenecks and fiscal policy support to firms and households. but domestic demand, especially consumption, remains weak. headline inflation declined from its october peak and stood at 7. 0 % in april. core inflation remains elevated, partly because of input cost pressures. upside risks to inflation stem from, among other things, higher than expected wage and profit margin growth, and a potential lasting rise of longer - term inflation expectations above our target. downside risks relate to possible renewed financial market tensions and weaker demand, due for example to a more marked slowing of bank lending or a stronger transmission of monetary policy. as the inflation outlook continues to be too high for too long, we decided at our may meeting to raise our key policy rates again, by 25 basis points. we also announced that the governing council expects to discontinue reinvestments under the asset purchase programme ( app ) as of july this year. while our key interest rates are the primary tool for setting our monetary policy stance, the reduction of the app portfolio also helps to normalise monetary policy. 3 while the speed and scope of our policy tightening since last july has already been unprecedented, our future decisions will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our

marked a decrease in the last global economic crisis, namely in 2009, 2010, 2011 ; therefore, it remains to be seen how the effects of pandemic crisis are to be manifested in economies where our diaspora is concentrated in order to have a more specific assessment for the remittances this year. the decrease of remittances in 2009 as a consequence of global financial crisis was 3. 8 %. at the same period, the kosovo economy marked a decrease in economic growth from 4. 5 % to 3. 6 %. as a result of the overall decrease of demand in all countries, our exports are expected to decrease, thus further increasing the effects of crisis on the economy of kosovo. moreover, the inability to perform the economic activity under normal conditions and insecurity for developments in the future are expected to directly impact the decrease of foreign direct investments. public expenses constitute the category which is expected to sustain sustainability during this period, as their flow in the economy is expected to mitigate to an extent the adverse effects from the abovementioned channels. the package approved by the government of kosovo few days ago is expected to provide a necessary injection of funds into the economy. however, the circumstances that the economy is experiencing will challenge the public finances as well. the decrease of the general economic activity is expected to have an adverse impact on the total budget revenues, while the increasing need for increased expenses in the form of various transfers may have an adverse impact on capital public investments that are very necessary for creating the conditions for greater economic development in kosovo. in order to mitigate the consequences of this crisis on our economy, the central bank of kosovo has been proactive by undertaking a range of measures aimed at ensuring the normal functioning of financial system and mitigating the impact of the crisis on our economy. also, we have continuously followed the developments at the region, eu and international level, and regularly communicated with our international collaborators, such as imf, world bank, ebrd and chambers of commerce in kosovo and we all share the same concerns for this situation and in particular for the consequences that may occur in case this situation is prolonged. also, in the framework of the cbk constitutional mandate, we have coordinated actions with all institutions of kosovo in order to effectively manage the situation occurred. today, although you are informed, allow me to briefly reiterate the measures we have undertaken and their purpose. 1. initially, we have undertaken all necessary measures to ensure the regular functioning of the