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L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July 2005 1 Can reform be successful without growth? Aspen Dialogue on World Economy, 8-9 July 2005.

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Presentation on theme: "L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July 2005 1 Can reform be successful without growth? Aspen Dialogue on World Economy, 8-9 July 2005."— Presentation transcript:

1 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July Can reform be successful without growth? Aspen Dialogue on World Economy, 8-9 July 2005 Lorenzo Bini Smaghi EUROPEAN CENTRAL BANK

2 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July Outline Compared with previous cycles, the euro area is currently experiencing: A weak recovery In spite of expansionary macro-policies This suggests that we are facing structural changes There is no alternative to further reforms, even with low growth

3 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July The current recovery (started in Q3 2003) is weaker than the previous ones 1. A weak recovery Source: Eurostat. Note: the through for the current recovery is Q and for the previous recoveries Q and Q

4 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July Private consumption growth has been the weak factor 2. A weak recovery Source: Eurostat.

5 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July Investment has been broadly in line with previous recoveries 3. A weak recovery Source: Eurostat.

6 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July Net exports have also been slightly weaker 4. A weak recovery Source: Eurostat.

7 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July Policies have been accommodative: Real short term interest rates are historically low 1. Policy responses Source: ECB.

8 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July Real long term interest rates are also historically low 2. Policy responses Source: ECB.

9 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July Fiscal policy has been accommodative 3. Policy responses Source: European Commission.

10 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July Government debt has increased 4. Policy responses Source: European Commission.

11 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July Lack of confidence Source: European Commission. A main factor has been weak confidence

12 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July As confirmed by increase in household savings 2. Lack of confidence Source: Eurostat.

13 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July Possibly due to uncertainties about employment prospect 3. Why is confidence low? Source: European Commission. Note: The figures represent the balance between positive and negative options. A fall indicates a more positive employment prospect.

14 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July In spite of good employment growth 4. Why is confidence low? Source: Eurostat.

15 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July Perceived inflation has been higher 5. Why is confidence low? Source: European Commission. Note: The figures represent the balance between positive and negative options. A fall indicates a more positive employment prospect.

16 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July Although actual inflation has been much lower 6. Why is confidence low? Source: Eurostat. Note: The figures represent the HICP index.

17 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July Oil price developments might have contributed to low confidence 7. Why is confidence low? Source: BIS.

18 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July Many structural reforms have been implemented so far in the euro area. But the lag with major competitors (US, UK, SE) is still large or has widened. 1. Reforms are needed There is no alternative to structural reforms:

19 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July In the labour market, the employment rate significantly rose, but remains below the level observed in the other countries 2. Reforms are needed Source: OECD. Note: The employment rate is defined as employment relative to working age population.

20 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July Hourly labour productivity growth has fallen in the euro area 3. Reforms are needed Source: Groningen database.

21 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July Potential output growth remains low 4. Reforms are needed Source: OECD

22 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July Some key structural indicators (2003/2004) 5. Reforms are needed Source: Eurostat and OECD * A low level of PMR and EPL indicators indicates a low regulation.

23 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July In view of ageing, without reforms, debt to GDP could rise above 250% by 2050 (EC estimates) 6. Reforms are needed Source: United Nations

24 L Bini-Smaghi Aspen Dialogue on World Economy, 8-9 July Restore confidence Enhance potential output Challenges Continue reforms in a view to: Instead of adopting a piece-meal reform process that produces “reform fatigue” and raises uncertainty


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