have sounded much louder if the ec, the imf and others had not suggested that the economy was running below potential. inappropriate reliance on mismeasured output gaps can lead to complacency during good times. bis central bankers ’ speeches i recount this example about how the output gap can be misused in policy debates because once again, as we are coming out of the crisis, some voices are stressing the extent of the output gap that the euro area is facing today, perhaps drawing conclusions about policy that could again be reversed as time goes by. the focus on price stability must remain unrelenting. * * * that said, another lesson is the following : the central bank focus on price stability is insufficient to maintain overall stability in the economy. the crisis has confirmed that a central bank with a price stability objective and insufficient regulatory powers cannot ensure broader financial stability in the economy. the crisis has revealed a general underappreciation of systemic risks in micro - prudential supervision. it has highlighted the need for a more system - wide macro - prudential approach towards supervisory oversight to ensure overall stability in the financial system. as a result, we see a shift in emphasis with new organisations created in some jurisdictions to address this gap. in the euro area, the establishment of the european systemic risk board is meant to serve this role. by definition, micro - prudential supervisors focus on individual institutions and cannot effectively assess the broader macroeconomic risks that pose a threat to the financial system as a whole. this is a task best suited to central banks. but for central banks to better enhance financial stability they must be provided with the right tools. consider, for example, an episode of persistently high credit growth in an environment of price stability. adjusting the interest rate tool is unlikely to be the most appropriate response. ideally, under such circumstances, the central bank should have at its disposal, either directly or through its participation in a macro - prudential body, the macro - prudential levers with which to contain the risk of a potential financial disturbance. these could comprise the power to vary capital requirements, leverage ratios, loan - to - value ratios, margin requirements and so forth. considering the important informational synergies between micro - prudential supervision and systemic risk analysis, bringing micro - supervision close to, if not under the same roof as, other central bank functions seems an attractive proposition. this should contribute to better management of overall economic stability. a concern

##ilience of domestic demand dynamics. in the subsequent years, employment growth outpaced gdp growth, which, while positive in terms of job creation, signalled worrying trends in productivity. this may be attributed to several factors : such as the rebound in labour - intensive services, labour hoarding that is the decision of companies to keep staff employed as economies 1 / 3 bis - central bankers'speeches reopened even if they were not fully utilised combined with robust company profits that allowed firms to retain staff. as of 2023, the euro area labour market's resilience appears to be changing. there are signs of a slow - down in job creation, particularly in the services sector. business employment expectations are softening and vacancy rates are moderating. notably, the slight increase in the unemployment rate in the euro area to 6. 5 % in october 2023, could be a further sign of the transition in economic dynamics. at the same time, wage growth remains strong, even though there are early signs of moderation, which could be fundamental in relieving inflationary pressures. the short and medium term economic outlook is positive in the sense that our downside case scenarios have not materialised. the euro area's economic forecast points to a moderation in growth, but avoidance of a hard landing. the projections for 2023 predict a gdp growth of 0. 7 %, gradually increasing to 1. 5 % by 2025. similarly in cyprus, we see the same trends but at relatively higher levels of economic growth. specifically, growth is expected to reach 2. 4 % in 2023, rising further to 2. 7 % in 2024, and 3. 1 % in 2025. the forecast for the euro area considers several factors such as the strength of the labour market, even though it is moderating ; the challenging external environment ; the impact of ongoing monetary policy tightening ; and the gradual withdrawal of fiscal policy support. regarding price developments, inflation dynamics are on a strong corrective path. recent months have witnessed a substantial turnaround in the inflation landscape of the euro area, with inflation dropping to 2. 9 % in october 2023, from the historical high of 10. 6 % in october 2022. this correction in inflation indicates that the ecb governing council's monetary policy efforts are bearing fruit. the projections indicate a continued disinflationary process, with energy inflation in negative territory and a moderation in food inflation, which is still at a high level