In sum, we are currently in an unusual and challenging situation. According to many economic indicators – such as high employment, labour shortages, capacity utilisation in manufacturing, elevated inflation and over-valuation of housing markets – we are high in the business cycle.
At the same time, our monetary policy is still exceptionally accommodative after coping with the lengthy period of deflationary pressures and the pandemic shock. The situation is particularly challenging as certain financial vulnerabilities have built up over the last few years, in particular the high indebtedness of some countries and companies, overvalued housing markets across Europe and accumulated risks in non-bank financial institutions.