The economic outlook for the euro area has deteriorated rapidly. The impact of Brexit on Europe as a whole is hard to predict. Another factor overshadowing the global economy is the trade dispute between the USA and China.

The summary provides a simple introduction to the assessment of developments in the global economy and monetary policy presented in the March edition of the Bank of Finland Bulletin.

The fastest stage of growth in the euro area looks to have passed, but momentum remains strong. Uncertainty is being fuelled by protectionism and Italy’s domestic economic policy.

Following the steep contraction caused by the financial crisis, there have been substantial differences in economic performance across the different countries in the euro area. Healthy economic structures appear to have facilitated a speedier recovery.

The favourable outlook for the global economy is overshadowed by the threat of protectionism. In the euro area growth has picked up. Some of this acceleration is on a sustainable basis, but long-term growth is likely to remain slower than pre-crisis growth.

How would a rapid but controlled restructuring of China’s economy or a sudden halt to debt-driven growth affect the Chinese and euro area economies?

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.

Increasing market uncertainty over the condition of banks in early 2016 was not due solely to concerns about global economic growth but also above all reflected concerns about banks’ non-performing loans and declining profitability amid low interest rates and subdued growth.