peter praet : the euro area economic outlook and monetary policy intervention by mr peter praet, member of the executive board of the european central bank, at a panel discussion at the g - 20 conference " the g20 agenda under the german presidency ", organised by the institute of international finance, frankfurt am main, 15 march 2017. * * * the euro area recovery has been firming and broadening across sectors. gdp has posted 15 consecutive quarters of positive growth. the unemployment rate has reached its lowest level since 2009. the february composite output pmi stands at its maximum since april 2011. and consumer confidence, despite a slight decline in february, has so far remained undeterred by the elevated political uncertainty. overall, these indicators suggest that the cyclical recovery may be gaining momentum. the ecb ’ s monetary policy has been a key contributor to this positive track record. it has ensured supportive financial conditions and facilitated their pass - through to the borrowing costs of firms and households. as a consequence, euro area bank lending rates hover around their historical lows and have converged across countries. the resultant monetary stimulus has been indispensable to shield the recovery from an unsupportive global environment and strong deleveraging pressures in the private and public sectors. supported by monetary policy, the recovery is likely to continue and we have more confidence in the outlook. the latest ecb staff projections foresee a continued stable economic expansion over the next three years, with annual growth rates ranging between 1. 6 % and 1. 8 %. moreover, the downside risks around the growth outlook have become less pronounced, albeit remaining tilted to the downside. accordingly, we are no longer concerned about deflation risks. at the same time, the recovery has yet to translate into a durable and self - sustained pickup in inflation. the recent sharp uptick in headline inflation was mainly due to energy and food price inflation. our staff projections foresee that these price pressures will cause a hump on the inflation path that was projected in december, with the medium - term outlook for headline inflation largely unaltered. underlying inflation pressures continue to remain subdued as unutilised resources still weigh on wage and price formation. inflation rates excluding energy and unprocessed food, for instance, have remained below 1 % for almost a year. importantly, inflation dynamics continue to be conditional on a very substantial degree of monetary accommodation. looking through recent volatility, the inflation outlook does not

##u imply long - run divergence? results from a comparison with the united states of america and germany, university of hamburg, department of economics and politics discussion paper, macroeconomics and finance series, 2 / 2007. when interpreting relative ulc developments from a competitiveness perspective, we should keep in mind that they are also other key indicators of competitiveness. for example, eurosystem staff have recently developed what we call harmonised competitiveness indictors. these indicators, which are based on consumer price indices, are calculated on the basis of weighted averages of the bilateral exchange rates of each euro area country visa - vis the currencies of its trading partners. they show a broadly similar dispersion of competitiveness developments across euro area countries, although the extent to which countries have gained or lost competitiveness over the past eight years differs somewhat compared with that implied by relative ulc measures ( see slide 9 ). iii. the causes of diverging ulc developments what is behind these diverging developments in relative ulc growth in some countries? to better understand their evolution over time we can look at the individual components of ulc : high ulc growth can be explained either by particularly strong wage growth, low productivity growth or both ( see slide 10 ). in greece, for example, despite very strong productivity growth, increases in compensation per employee have resulted in relatively high ulc growth vis - a - vis the euro area average. in italy compensation per employee has grown in line with the euro area average, but productivity growth has been relatively weak. 3 in relative terms, portugal has experienced both strong growth in compensation per employee and modest productivity gains. as regards the dispersion of ulc growth rates across all euro area countries, the contribution of differences in the growth of the compensation per employee accounts for the largest part of the differences in ulc growth rates ( see slide 11 ). we can gain further insights into the causes of diverging competitiveness performances across countries by analysing ulc developments in different sectors. in this context, ulc developments in the industrial sector may be of particular interest, given that this sector produces most of the tradables. it is interesting to note that, over the period 1999 - 2005, cumulated ulc growth in the industrial sector is considerably lower than in services in most euro area countries. [ slide 12 ] developments in compensation per employee have been rather similar across the two sectors in most countries, with the exception of germany. thus,