Youth unemployment fell to 20.6% in the third quarter and continues to decline more rapidly than the overall unemployment rate. Bank lending to households and companies is growing, while demand for loans is rising. ECB simulations showed that euro area GDP would be cumulatively at least 1.5% lower between 2015 and 2018 without the expansionary policy measures, with worse outcomes for inflation. And more than that: by acting timely and decisively we preserved future growth prospects. There is a growing awareness of the potential permanent negative effects of prolonged downturns, a process termed hysteresis. There are a number of channels through which hysteresis works. Unemployed people lose valuable human capital and skills that may take time to recover. They may also become permanently discouraged from working, reducing long-run participation in the labour force. The distressingly high rates of youth unemployment witnessed in many euro area economies are likely to cause some labour market “scarring”. Prolonged downturns may also cause businesses to become increasingly uncertain about future prospects, causing them to delay investment. This has the dual effect of depressing current economic activity, which reinforces the downturn, and reducing the amount of capital available for future production. Lower future growth translates directly into lower natural rates today, something I shall return to shortly. 2/5  BIS central bankers' speeches  Other potential consequences of unconventional measures While our measures have been successful in their aim of stabilising output and inflation, they also carry risks in terms of allocation of resources and distribution of wealth and income.
I have noticed that although real growth is evident in the region, it is accompanied by some important risks and vulnerabilities. One of the challenges attached is related to the sustainability of this growth. The National Bank of Romania shares your 1/2  BIS central bankers' speeches  view. We should not forget the saying “easy come, easy go”. Loose economic policies, unbalanced budgets and wage-price spirals could cost us much when the economic downturn check is due. This problem hit us severely in the recent past, but we have hardly learned the lesson. Because I have mentioned the economic laws, I will turn now to the legal environment: the report covers extensively the rule of law, the role of institutions and the judiciary. In the report, Central and Eastern Europe is presented as an example of effective measures and progress in this respect, which is of no small importance. Romania finds itself in an upright moment when economic performance is associated with strong achievements in the reform of institutions. We should not waste this moment. In the long run, the economy’s, the institutions’ and the society’s progress goes hand-in-hand, and, conversely, so does their regress. Therefore, we have to be careful not to reverse the current trend. Banks in Europe seem to ride better on the economic tide, also thanks to wide-ranging reforms brought by the Banking and Capital markets Union. Credit is still below its potential and the needs of the economy.