The Governing Council of the ECB has responded to the uncertainty generated by the debt crisis and the expected slowdown in inflation with an accommodative monetary policy and various non-standard monetary policy measures.
The Bank of Finland forecasts that world growth will remain very slow in 2013, at just over 3 per cent. In Europe, unemployment will remain high and real GDP will not reach its pre-crisis level until 2015, with the reduction in private and public sector debt weighing on growth in the crisis countries. The forecast sets out from the assumption that the agreed fiscal and structural measures in the crisis countries will be carried through successfully and confidence will continue to improve. Recovery will gain strength only gradually as the fall in housing prices in the crisis countries ends, the health of the banking sector is restored and the level of private debt is reduced. Downside risks remain and relate to deterioration in the still fragile sentiment on financial markets.
The seeds of the financial crisis were sown by the rapid growth in household and corporate indebtedness, which fuelled a rise in property prices to unsustainable levels in many countries. The post-crisis recession caused a collapse in government tax revenues and a steep rise in the government debt ratio. ‘Orderly deleveraging is unavoidable, but it will be slow. This will hamper economic growth both now and in the years ahead,’ Governor Liikanen continued.
Accommodative monetary policy will support economic recovery and give time for a controlled reduction in debt. "The crisis will not be resolved by monetary policy means alone. Structural reforms and measures to address the imbalances in the economy are indispensable", asserted Governor Liikanen.
Full press release
© Suomen Pankki - Finlands Bank
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