43rd Economics Conference of the OeNB explores new avenues for growth

Focusing on “Long-term perspectives for economic growth,” this year’s Economics Conference of the Oesterreichische Nationalbank (OeNB) highlights the possibilities for economic policy to act as a catalyst for sustainable economic growth and employment, in view of some of the big questions these days: How should we interpret the performance of growth after the financial crisis of 2007–2008? Are we dealing with a longer-term trend of persistent weakness that can be overcome with an adequate set of measures? Can our economies return to pre-crisis growth levels?

Creating a growth-friendly environment is one of the key tasks of economic policy. Monetary policy – with its primary objective of maintaining price stability – is meant to contribute to such an environment by ensuring a reliable policy framework; yet monetary policy cannot replace structural reform. And a forward-looking macroprudential policy aims at promoting a sound financial sector and banking system as well as at boosting the effectiveness of monitory policy, as OeNB Governor Ewald Nowotny underlined in his opening remarks.

Addressing the pessimistic scenario of long-term stagnation, reflecting concerns about aging societies and skepticism about technological progress, Governor Nowotny argued that notably the technological advances made in the IT sector and scientific breakthroughs in biotechnology may, indeed, equally well warrant optimism about future growth.

Moreover, Governor Nowotny singled out the role of central banks in supporting an economic upswing and sustaining long-run growth: Monetary policy is critical for stabilizing the economy. He pointed out that, as a case in point, the recovery in the United States and in the euro area and the return to growth have been supported significantly by the range of nonstandard measures that monetary policy makers adopted. After all, the recent forecasts of the European Commission predict a cyclical upswing across basically all EU Member States and attribute this upswing in part also to the ECB’s quantitative easing policy.

To conclude, the OeNB governor critically reflected on the fact that the pursuit of economic growth is a constant negotiation between aspects of quality and quantity. He recalled a famous essay drafted by John Maynard Keynes in the 1930s (“The economic possibilities of our grandchildren”) which discussed the interaction between economic progress and improvements in living standards. Those deeper questions are, in fact, part and parcel of the growth debate, just like the purely economic aspects that tend to dominate the public discourse.