These efforts of the central banks and of the governments are aiming at permitting the banks to live up to their role in the economy by resuming lending to economic agents. Reasons for a medium-term economic recovery 2009 will be a very difficult year. I have already said this on various occasions. I see however at least four reasons why we can be confident that the world economy and the industrialised nations will recover: •  The vigorous reactions of central banks and governments to the extraordinary situation – not only in Europe, but worldwide – will progressively produce their effects. They may not yet have been sufficiently taken into account in the expectations of private sector participants. •  The growth potential of the emerging market economies, for example, in Asia, is considerable. Their current deceleration of growth is temporary. Many of these countries have an enormous potential to develop domestic demand. •  Technological progress is very rapid and will continue and even accelerate. It is a major source of future long term growth. •  Prices for oil and other commodities have fallen sharply since mid-2008. Their rise was an important factor in the current economic weakness. Their present low levels will be an expansionary contribution to the global economy  For these reasons it seems to be a reasonable working hypothesis that after an exceptionally difficult 2009 we will see an economic recovery in 2010.
BIS Review 16/2009  1  A glance at the inflation rates in the euro’s first decade makes this clear: the average annual inflation rate in the euro area in the ten years since the introduction of the currency was 2.2%. By comparison, the average annual rate of inflation in Germany in the 1990s, before the euro was introduced, was also 2.2%. In the 1980s, the rate was 2.9%, in the 1970s 4.9%. In other words, in terms of stability, the euro does not need to shy away from any comparison with the Deutsche Mark and other legacy currencies. At 2.2% per year since 1999 average inflation was somewhat above the level that the ECB’s Governing Council has defined as price stability: an inflation rate of below, but close to, 2% in the euro area, over the medium term. Nevertheless, the result remains good, for the first ten years were anything but calm. In particular, we had an oil price shock, which was certainly comparable with that of the 1970s. Between early 2002 and mid-2008, crude oil prices in dollar terms rose by nearly 600%. In the case of food prices as well, we faced price pressures: at the beginning of the decade, and in particular in 2007 and 2008 by the global rise in food prices. Despite these shocks and short-lived erratic price movements, inflation rates remained generally low. Above all, inflation expectations were and are firmly anchored at a level in line with our definition of price stability.