olli rehn : global and european economy from the finnish perspective opening remarks by mr olli rehn, governor of the bank of finland, at the national university of singapore, singapore, 7 november 2019. * * * accompanying slides of the speech. ladies and gentlemen, it is my great pleasure to be here in singapore today and have the chance to discuss the economic outlook and monetary policy with you. singapore is a small and very open economy with a financial system that is highly integrated into the international financial markets. with a population of some 5. 5 million, there is a whole lot that finland and singapore have in common. never mind the fact that in singapore ’ s case the whole population lives in an area that is equal to the helsinki metropolitan region! anyway, we can both be proud of a high - quality education system and a skilled labour force that support an economy which is largely based on high - tech, innovation and r & d activity. in my opening remarks i will discuss the global economic outlook with a particular focus on the euro area and the ecb monetary policy. some weeks ago, at the annual meetings of the imf and the world bank, the mood was pretty gloomy. the global economy is in a synchronised slowdown due to the prolonged pervasive uncertainty that is damaging trade and investment. global growth forecast for this year has been downgraded to 3 per cent – the lowest level since the global financial crisis. deterioration of industrial confidence and a sharp and broad - based slowdown in global manufacturing explain the latest downgrade. the expected moderate pick - up of global growth in 2020 rests on a projected improvement in the performance in several of emerging markets and developing economies. yet, there are elevated downside risks, including an escalating trade war, the ongoing brexit concerns and the geopolitical turbulences in the middle east. thus, a much more subdued outcome could well materialise, with ramifications for both asia and europe. in the euro area, we have been on a path of recovery and growth since 2013, when the euro crisis had been contained. growth became gradually more robust and culminated in a 3 per cent expansion in 2017. however, growth has now decelerated to about 1 per cent. yet, thanks to the falling unemployment, the labour market remains resilient and is keeping up domestic demand in europe, e. g. in finland. so far the weaknesses in trade and manufacturing have not suffoca

price pressures are spreading across more and more sectors, in part owing to the impact of higher energy costs across the whole economy. even after removing energy and food from the headline measure, the forecasts for underlying inflation in the euro area are at elevated levels : 3. 9 % in 2022, 3. 4 % in 2023 and 2. 3 % in 2024. because inflation is already far too high and is likely to stay above target for an extended period, the ecb governing council began a tightening cycle in july by raising our three key interest rates by 50 basis points. last week, the governing council decided to raise them by an additional 75 bps, and we can assume further rises going forward. however, the impact of the current energy crisis on inflation should gradually subside after energy prices have reached their peak levels. the bigger question, therefore, is whether there are signs that demand - side forces are also starting to create further upside pressures on prices. there are at least three such forces to consider. the first of these demand - side forces is related to second - round effects in the labour market. real incomes have weakened in most advanced economies following the pandemic. de - globalisation as well as the war in ukraine are putting further pressure on real incomes, and so wage - price dynamics could become a concern. yet, we have not seen strong signals of such dynamics so far. it should be noted, however, that we are somewhat in the dusk when it comes to wage - related data. for instance, the latest figures on wages are from the second quarter of this year. to get more timely and granular information on wage developments, the ecb is developing a wage tracker. the idea is to collect granular member - state - based data on negotiated wage growth, which would provide forward - looking information on future wages. why is it that the current picture does not suggest strong upward pressure on wages? can we rely on this situation to last, going forward? a benign interpretation is that the absence of wage inflation reflects strong anchoring of longer - term inflation expectations. another possibility is that there might be significant non - linearities in the phillips curve. perhaps strong wage - price dynamics are absent when uncertainty is high. or perhaps wage earners have learned over the past decade not to pay too much attention to inflation when forming their expectations – though they may now increasingly do so. the growing risk of recession in the euro area and the steadily increasing labour participation rate might