Mario Draghi, (2018), “The outlook for the euro area economy”, Speech by Mario Draghi, President of the ECB, Frankfurt European Banking Congress, Frankfurt am Main, 16 November
The euro area economy has now been growing for five years, and we expect the expansion to continue in the coming years. Yet we have recently seen a loss in growth momentum. In both of the last two quarterly ECB growth projections, our staff has revised down its estimates. Actual data have also been weak. The flash estimate for euro area growth in the third quarter was just 0.2%.
The slowdown has raised questions about the strength of the growth outlook and, in turn, about whether the ongoing convergence of inflation towards our objective will be sustained. I would like to address these questions in my remarks this morning.
The key issue at stake is as follows: are we witnessing a temporary “soft patch” or a more lasting deterioration in the growth outlook?
There is certainly no reason why the expansion in the euro area should abruptly come to an end. A gradual slowdown is normal as expansions mature and growth converges towards its long-run potential. But the expansion in the euro area is still relatively short in length and small in size.
Since 1975 there have been five periods of rising GDP in the euro area. The average duration from trough to peak is 31 quarters, with GDP increasing by 21% over that period. The current expansion in the euro area, however, has lasted just 22 quarters and GDP is only around 10% above the trough. In contrast, the expansion in the United States has lasted 37 quarters, and GDP has risen by 21%.