ignazio visco : welcome address - “ research cluster 2 ” welcome address by mr ignazio visco, governor of the bank of italy, at the fourth annual workshop escb “ research cluster 2 ”, online conference, 23 november 2020. * * * it is my pleasure to open this fourth workshop of the “ research cluster 2 ”, which every year brings together economists working in the european system of central banks in the fields of international economics, fiscal policy, labour economics, competitiveness and governance of the european monetary union. research clusters were introduced three years ago with the purpose of fostering interactions and collaboration among economists based in national central banks and the ecb. this welcome initiative helps to spur an increasing number of joint studies, encouraging the development of a common view of the problems affecting our economies. if fostering interactions among researchers is important in normal times, it is all the more important in times of crisis and uncertainty, when decision - making processes strongly need timely and high - quality studies, which can benefit from broader cross - country perspectives. today, with the diffusion of covid - 19, we are unfortunately living through one of the worst such periods in our lifetime. the impact of the pandemic on our societies and economies has been unlike anything we have experienced in recent memory. its human and social costs are continuing to mount, with almost 60 million cases confirmed globally and 1. 4 million deaths officially registered. in early october the imf estimated that world gdp would fall by 4. 4 per cent this year, a severe contraction that, in the case of europe, nearly doubles in magnitude. these estimates do not incorporate the effects of the resurgence of the virus and of the measures put into place to address it. recent news on vaccine development offer reason for cautious optimism, but it will take time until widespread immunity is achieved. the outlook remains largely dependent on the evolution of the health crisis, which is likely to continue to weigh on global economic activity well into the next year. the response of central banks, supervisory authorities and governments in the majority of countries has been extraordinary since the early stages of the crisis. central banks have implemented a wide array of instruments, including new asset purchase programmes and liquidity facilities, to make monetary conditions more expansionary, counter the tensions in financial markets and support the essential provision of credit to households and firms. the response of governments has also been vigorous. in europe, in particular, the budgetary plans designed to repair the economic and social damage brought

20 years, and falling quickly. for these reasons ( and for others that i will come to later ), we always felt optimistic about our medium - term economic prospects. this does not mean that we felt that the strong expansion of the 1990s could continue indefinitely at the average growth rate we were then recording. we were conscious that the business cycle, whether domestic or international, has not been eliminated, even though it may have been ameliorated. this meant that slower growth was to be expected as the cycle unfolded. but we did feel that there was no domestic reason why the economy should undergo anything more serious than a moderate slowing phase within the general context of continued expansion. of course, we recognised that we were not immune to developments in the rest of the world. to the extent that there was a risk of something more serious than a moderate slowing of the australian economy, we identified that risk as coming from overseas. but even here there was an element of optimism in that we felt that in the event of a world downturn, we would be affected less and later than most other countries because of the resilience of our economy i have just outlined. i now turn to the second component of our view referred to earlier. 2. " once - off " developments in 2000 / 01 everyone knew that developments in 2000 / 01, particularly the first half, were going to be difficult to forecast and interpret. this was because economic statistics would be very " lumpy " as they reflected the introduction of the gst on 1 july, and the holding of the olympic games at the end of the september quarter. the introduction of the gst, and associated changes to other taxes, was a major event – structural changes of this type are likely to occur only once in a decade, or even once in a generation, and so are always difficult to forecast. economists had very little to go on in assessing the likely effects, but we all tried to do so by looking at the experience of other countries that had made a similar change. this was not a lot of help, and no - one could be confident what the main effect would be. judging from the questioning i received during this period, the most likely effect was thought to be on inflation, with shifts in consumption being the other factor most often mentioned. i am not aware of anyone who thought that house - building would be the main area affected, although everyone expected a decline. 3. what happened? in the event, the major transition effect of