, it still shows a weakness that relates in part to the fact that the euro area is coming out of a balance sheet recession, where economic activity is constrained by the need for governments, firms and households to deleverage. for instance, the ratio of euro area investment to gdp is still more than 3 percentage points below its pre - crisis peak level. this phenomenon of economic growth remaining weak in the aftermath of banking crises has been well documented. moreover, the repercussions of the crisis have also weakened the recovery in all major economies – albeit in different ways and in varying degrees – and with this, the demand for euro area exports. indeed, the only positive contribution to euro area real gdp growth in 2015 came from domestic demand, which in itself highlights how important our monetary policy measures have been in supporting the recovery of key euro area spending bis central bankers ’ speeches components. 1 monetary policy has been practically the only expansionary macro policy in the euro area, the recovery would have been much weaker without it. concerns over the weakness in the global economy generated apprehension in financial markets earlier in the year, but have receded somewhat since then. this is evidenced by the subsidence of financial markets turbulence, as stock markets recouped their losses and commodity prices rebounded. this has also helped to ease financial conditions in many emerging market economies, where capital flows have returned amid an improved global risk appetite. also, oil prices have recovered to a degree, which reflects a moderation in the global oil supply overhang as well as better than expected global oil demand largely stemming from india and other non - oecd asian countries. uncertainties, however, remain and further bouts of volatility cannot be precluded. in terms of economic activity in major economies, following rather weak readings at the start of the year, both the services and manufacturing sectors are showing signs of a modest pickup, which is expected to continue. this improvement is broad based with the main exception being japan. global trade has also showed resilience early this year, although remaining still relatively weak when seen from an historical perspective. more specifically, in the u. s., following a moderate expansion of real gdp by an annualised rate of 1. 4 % in the fourth quarter of 2015, economic activity showed signs of further deceleration in the first quarter of this year, in particular business equipment spending and real consumption growth have remained moderate. however, the strengthening of the labour market in combination with household balance sheets

down long - term growth rates. 2 two of these contributing factors relate to declining productivity and weak demographics. in relation to the former, robert gordon ( 2016 ) argues that the slowdown in the pace of innovation of the so - called general - purpose technologies, which are those with a broad - based impact on living standards and business practices, is the cause of the reduction of total productivity growth in the u. s. and most advanced economies. while for the latter, charles goodhart and co - authors ( 2015 ) emphasise the fact that the positive global labour supply shocks recorded in past decades are fading out, implying that another crucial source of growth is drying - up. in the event that a permanently lower potential growth rate materialises, this would have considerable ramifications. 3 first, if firms and households believe that future growth will be lower, they may refrain from undertaking consumption and investment in the present and thereby, reduce economic potential further. additionally, it makes surmounting the large debt overhang which prevails in the global economy more arduous. there would also very likely be societal implications, as lower economic growth would not be able to create enough jobs for citizens and may exacerbate income inequality. but it would also have significant implications for the conduct of monetary policy. for example, a lower potential growth rate reduces the equilibrium interest rate, that is, the interest rate where resources are fully employed in the economy and inflation is stable. monetary policy strives to engineer its policy rate as close as possible to the equilibrium rate in order to steer output back towards its potential and thereby, close the output gap and keep inflation at the central bank ’ s desired level. however, as the equilibrium rate falls, the central bank faces challenges coming from the lower bound on nominal interest rates as it attempts to reduce its policy rates to a low enough level. in addition, it may be forced to keep rates at low levels for long in order to provide the required stimulus to the economy. addressing this situation requires a combination of both supply and demand side policies. supply side measures are required to increase potential growth, and consequently the equilibrium real interest rate. monetary and fiscal policies can stimulate demand, which helps speed up the closing of the output gap while at the same time, boosting potential growth by facilitating investment. in addition, by mitigating a prolongation of the recession, monetary policy can help prevent hysteresis from gaining a foothold in the labour market, which