Secular stagnation : A false alarm in the euro area?

Abstract

Worries about secular stagnation, a prolonged period of low growth, arose after the Great Recession. In the euro area, such fears may appear misguided given sound growth, tightening labour markets and expectations of gradual normalisation of monetary policy. Secular stagnation, however, focuses on the long term, its key structural drivers have remained broadly unchanged, and it does not rule out the occurrence of upswings. Moreover, the extent to which the expansion proves financially sustainable and remains sound in advanced stages of monetary policy normalisation will prove decisive. Recent technological innovations and their diffusion may hold sizeable productivity gains in store with the potential of overcoming the risk of secular stagnation. Policies that boost long-term growth represent a no-regret policy option and would help alleviate current constraints on monetary policy.