Long-term inflation expectations, which had remained well anchored at levels in line with the ECB definition of price stability from the outset of Monetary Union in January 1999, started displaying signs of upward instability in the second half of 2003 after the last decision to decrease rates. The ten-year Break-Even Inflation Rate (BEIR) suggested an incipient rise in longer-term inflation expectations [see Chart 2].
Simulations by the OECD suggest that a reduction of 2 percentage points in Chinese domestic demand growth over the next two years, if accompanied by the types of financial market impacts on equity prices and uncertainly and risk premia that we observed in August last year and again more recently, would lower global growth by ¾ – 1 percentage point on average in 2016–2017 6.