Fabio Panetta: Economic developments and monetary policy in the euro area

Speech by Mr Fabio Panetta, Governor of the Bank of Italy, at the 30th Congress of ASSIOM FOREX (the Italian financial markets association), Genoa, 10 February 2024.

The views expressed in this speech are those of the speaker and not the view of the BIS.

1. Global economic trends and outlook

The global economy remains sluggish. World trade stagnated again in the fourth quarter of last year; it is expected to recover moderately this year, but at a much slower pace than in the two decades before the pandemic.

The simultaneous tightening of monetary policy by the central banks of the leading economies is helping, along with the fall in energy prices, to bring inflation down significantly, but is dampening demand. The exception is the United States, where domestic demand and output continue to grow rapidly.

The global outlook is also vulnerable to the uncertainty fuelled by the conflicts in Ukraine and the Middle East, as well as by the economic difficulties in China, where the property crisis continues unabated.

Disruptions to the Red Sea shipping route, which handles around 12 per cent of world trade, are forcing vessels from Asia to seek alternative routes. This is delaying deliveries and increasing transport costs, especially for destinations in Europe (Figure A1).

In this weak economic context, geopolitical fragmentation is setting back economic integration between countries and regions across the globe.

he introduction of trade restrictions, under way for some time, accelerated after the pandemic and the invasion of Ukraine (Figure A2), at times taking the form of embargoes on exports of technological products such as microprocessors. This could lead to a rebalancing of trade between countries, as has already occurred for energy products.

If this new scenario were to endure, it would have significant medium- and long-term consequences.