Mario Draghi has called on policymakers to “seize” the “window of opportunity” provided by accommodative monetary policy to boost productivity growth in the face of an ageing population.
The European Central Bank president has become the latest central banker to warn that slowing productivity threatens global growth, and to urge governments to address the productivity stagnation that has caused Eurozone productivity growth to fall from two per cent in 1995 to 0.5 per cent today.
“It is up to euro area governments to act, individually at national level as well as jointly at European level,” said Draghi.
Speaking at the Deusto Business School in Madrid, Draghi said the ECB is “providing space for euro area governments to carry out the necessary structural reforms”.
However, a failure to act could have “direct consequences” on future policy as well as on Europe’s “future prosperity”, he warned.
An ageing population will theoretically create a higher level of structural unemployment, as a larger proportion of the population live beyond working age. Draghi called on governments to reform their economies in order to get more people of productive age working.
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“Without concerted effort on structural reforms, per capita income growth in the euro area is likely to stagnate, and may even decline,” said Draghi.
Poor productivity weakens prospects for living standards as less wealth is spread between more people.
Draghi also claimed the ECB’s low interest rate policies had contributed towards a rise in productivity by encouraging governments to implement structural reform.
Studies show “lower interest rates… tend to support rather than hinder the implementation of reforms”, he said.