lucas papademos : economic outlook in the euro area statement by mr lucas papademos, vice - president of the european central bank, at the 2008 asia - europe ( asem ) finance ministers ’ meeting, jeju, korea, 16 june 2008. * * * introduction it is a great pleasure for me to participate in the asem finance ministers ’ meeting. in my statement, i will focus on the economic outlook in the euro area, with special emphasis on inflation prospects and risk, the monetary policy stance of the european central bank ( ecb ), recent financial market developments and our assessment of the outlook for financial stability. economic outlook the pace of economic activity in the euro area is expected to decelerate in 2008 and 2009 from the robust 2. 7 % gdp growth rate recorded last year. the eurosystem staff projections, published on 5 june 2008, foresee annual real gdp growth in the range between 1. 5 % and 2. 1 % in 2008, and between 1. 0 % and 2. 0 % in 2009. recent growth forecasts for the euro area by the european commission, international institutions and organisations and the private sector are broadly in line with the eurosystem staff projections. all in all, our latest assessment, based on the macroeconomic projections produced by the staff of the eurosystem, and our analysis of the most recent information, from data and survey indicators, confirms the expectation of moderate but ongoing economic growth. both domestic and foreign demand are expected to support gdp growth in 2008. the resilience of global economic growth, which benefits from the robust economic activity in emerging market economies, should support euro area exports. domestic factors, however, are expected to contribute the largest part of euro area growth in both 2008 and 2009. in particular, non - residential private investment is expected to provide support to economic activity, as capacity utilisation remains high and profitability has been sustained in the nonfinancial corporate sector. this outlook for economic growth is surrounded by continuing high uncertainty and downside risks prevail. the financial market turmoil could have a more adverse impact on the real economy than currently anticipated. in addition, further unanticipated increases in energy and food prices could have dampening effects on consumption and investment. there are also risks stemming from the possible emergence of protectionist pressures and from the still large, though declining, global imbalances. turning to price developments, the outlook for price stability in the euro area has deteriorated

households and corporates. in particular, rejection rates and rates on granted loans increased, and so did the share of firms citing access to finance as their dominant concern. on average, loans extended to non - financial corporations and households have declined more than during previous crises, mainly because bank funding shocks have been larger than in the past ( chart 1 ). the ecb has strived to alleviate funding stress by reducing policy rates, as well as by implementing non - standard monetary policy measures to provide liquidity to the banking system, where acute stress has occurred. this has also helped to mitigate the i wish to thank alex popov for his contribution to this speech. i remain solely responsible for the opinions contained herein. small firms as a rule do not enter into publicly visible contracts with employees, suppliers, or customers, do not issue securities that are continuously priced in public markets, and do not have audited financial statements. in addition, about a quarter of new small businesses disappear within two years, and more than half disappear within four years. see : berger, a., and g. udell, 2012. the economics of small business finance : the roles of private equity and debt markets in the financial growth cycle. journal of banking & finance 22, 613 – 673. bis central bankers ’ speeches risks of disorderly bank deleveraging and to ensure adequate credit supply conditions in the euro area. since 2010, the sovereign debt crisis has aggravated the funding conditions of euro area corporates and smes in particular, both by hurting their growth prospects and by forcing banks exposed to the sovereign debt of a number of euro area countries to rebalance their loan portfolios. by the same token, it is reasonable to argue that by counteracting undue risk premia on government bonds, the ecb ’ s non - standard measures, such as the omts, will contribute to restoring access to finance for the private sector. let me first talk about the financial situation of euro area smes. before the crisis, survey evidence indicated that the main source of sme finance was retained earnings ( around two - thirds ). 10 % was in the form of trade credit from suppliers or customers, and around 10 % from external non - bank sources. about 15 % of smes ’ capital investment and operating expenses were financed with bank loans and credit lines. this average dependence on bank financing was as low as 8 % in portugal and as high as 22 % in ireland3, indicating that small