22 January 2018  Address to the Club Siglo XXI Luis M. Linde Governor  Introduction Let me begin by thanking the Chairman of the Club Siglo XXI, and my good friend, Chencho Arias, and the management of the Club for their kind invitation to me to join you today. Over the years this Club has seen debate on all – or practically all – matters, and naturally on economics too, which will be our subject today. My address will focus on the European and Spanish economic situation. Situation of the European economy With a decade now having elapsed since the international financial crisis began, we can say that the euro area is finally in a phase of sound and vigorous economic expansion. GDP growth is expected to have posted a growth rate of around 2.5% in 2017, a figure not seen since the early years of the monetary union. The favourable economic situation extends, moreover, to all corners of the area, including the economy that has undergone the greatest difficulties, namely Greece. It is expected that in the coming months Greece may successfully conclude its third financial assistance programme. Further evidence of the soundness of the recovery is the dynamism of business investment following years in which the expansion of household demand, acting as the sole engine of growth, appeared to be decoupled from the need for firms to increase their capital. Reflecting the strength of the expansion has been a notable reduction in unemployment rates, which are generally standing at pre-crisis levels.
According to Statistics Norway’s business tendency survey, the shortage of labour and intermediate goods is now at a higher level than during the booms in the 1980s and 1990s. The strong rate of growth has only to a limited extent fed through to a higher rise in prices for consumer goods and services. Consumer price inflation adjusted for tax changes and excluding energy products (CPI-ATE) has admittedly picked up gradually since late summer 2006, but in relation to the economic situation, underlying inflation remains low. The year-onyear rise in the CPI-ATE was 1.4 per cent in July. Other measures of underlying inflation show approximately the same rise in prices. According to our assessment, underlying inflation is between 1 and 1½ per cent, as it has been for a longer period. The year-on-year rise in the total consumer price index (CPI) has been just under ½ per cent in recent months. This is because electricity prices have been substantially lower this year than in 2006, when unusually high electricity prices due to low precipitation levels pushed up the year-on-year rise in the CPI close to the inflation target. In recent months, electricity prices have been at their lowest level since 2002. There are probably a number of reasons why inflation has been low in an environment of high economic growth. First, Norway’s terms of trade have improved. Prices for oil and gas, freight, fish, industrial commodities and engineering products have increased considerably. In addition, market growth abroad has provided market opportunities for Norwegian export goods.