Inflation expectations extracted from inflation swaps are often used as a measure of the market’s inflation expectations, but the evolution of the swaps does not always correspond to actual changes in inflation expectations.
Since the financial crisis of 2008, the growth rate has been exceptionally slow, due to weak growth in total factor productivity. In addition to the recession itself, the slow pace of recovery does, in fact, constitute a significant part of the overall costs of the crisis.
During the last 10 years, the natural rate of interest in the advanced economies is estimated to have declined substantially. However, estimates of the level of the natural rate of interest are uncertain, which hampers the use of this interest rate as a monetary policy guide.
Euro area monetary policy has been relaxed substantially in recent years. The expanded asset purchase programme has progressed according to plan and brought about a broadly based reduction in interest rates in the euro area.
In March 2016, the Governing Council of the ECB also included corporate bonds in the expanded asset purchase programme. The purchases are carried out by six national central banks, including the Bank of Finland, acting on behalf of the Eurosystem.
The effects of Brexit on the real economy will be evident only later. Three months after the referendum, the UK has still not notified the European Council of its intention to leave and is still an official EU member state.
According to futures prices monitored in the Bank of Finland forecast for the international economy, oil prices will rise only slightly in the near future. Futures prices are however surrounded with considerable uncertainty.
In spite of an accommodative monetary policy and a general economic recovery, growth of loans to non-financing corporations has remained weak in the euro area. The consistently poor growth is largely due to real estate market bubbles in a few countries, which then burst as a result of the financial crisis.
Thanks to the Eurosystem’s comprehensive monetary policy measures, monetary conditions in the euro area are favourable. GDP is expected to grow at a reasonable pace in the immediate years ahead, and the pace of inflation is expected to gradually accelerate.