Second, our accommodative monetary policy has ensured very favourable financial conditions: lending to firms and households has continued to grow in the euro area, although at a reasonable pace – +2.3% for firms and +2.2% for households in January 2017 – and borrowing costs have significantly declined. Third, [slide 3] the economic recovery is firming and broadening. Fortunately, this appears to be a worldwide trend: our G20 communiqué in Baden-Baden last week started with the words “We met at a time when the global economic recovery is progressing", while also stressing that significant risks and uncertainties remain. Euro area monetary policy has played its part in this recovery, and the latest ECB staff projections foresee higher GDP growth for the region, at 1.8% in 2017. The euro area unemployment rate dropped to 9.6% in January of this year, its lowest level since 2009. And the recovery is also broadening across euro area countries, including in France: despite some temporary political uncertainty generated by the upcoming elections, France’s economic outlook is improving. The country has also not been inactive over the past few years when it comes to reforms: pensions have been reformed, corporate charges have been cut considerably, and labour laws have been made more flexible. Like you, I would like France to pick up the pace of reform; I say it frequently in my own country. But you shall not regard your French neighbour as “unreformable”.
Medium-term inflation expectations per se have remained firmly anchored around levels consistent with price stability. This is in line with our reading of survey-based inflation expectations. The second message is that markets are, however, deeply sceptical that inflation can surprise much on the upside in the future. This is corroborated by survey-based measures, which show that, since the financial crisis, survey participants have been more concerned about deviations in the direction of lower inflation and less concerned about deviations in the direction of higher inflation.7 Another way of looking at this is to consider the option-implied distribution of average inflation over the next five years. You can see this on my next slide in the case of the euro area. Although this distribution reflects expectations over a nearer horizon, it re-emphasises the point that investors assign only a small probability for inflation to surprise much to the upside. But it also demonstrates convincingly that markets have by and large priced out deflationary risks in the euro area. As you can see, when we announced the APP in January 2015 these risks were considered to be very different. I see two main factors that may help explain why investors and professional forecasters are currently casting doubt on positive inflation risks.