much to the quality of data as to the context in which they appear. let me explain what i mean with reference to the economic situation today. on the face of it, the incoming data points to an overall picture of normalisation in the euro area economy. domestic demand is gradually strengthening. the commission ’ s economic sentiment indicator remains at levels consistent with a modest pace of expansion. the purchasing managers ’ index has also held up during the early part of the autumn – contrary, perhaps, to what one might have expected given the shocks that appeared since the spring, see ben bernanke ’ s speech at the 32nd annual economic policy conference, federal reserve bank of st. louis, 2007. bis central bankers ’ speeches especially the slowdown in emerging economies. and while downside risks have increased, tail risks have receded – not least thanks to the policy reactions and communication of central banks in a number of major economies. yet policymakers have to set this positive snapshot of the economy against a wider backdrop that is less compelling. the risks around the evolution of the global economy have shifted downward, making the contribution of external demand to the recovery less assured. domestic demand, though rising, also appears relatively weak if one considers that we are still in an early phase of the recovery and that there are important tailwinds supporting the economy – namely our monetary stimulus and lower oil prices. investment has so far failed to perform its “ accelerator ” role for the recovery. this relates in part to the fact that the euro area is in the aftermath of a major financial crisis followed by a “ balance sheet recession ”. financial institutions, firms and households are going through a stock adjustment where the legacy of the crisis, in particular the high level of debt, still needs to be fully worked through. indeed, this is the first cycle in modern times where real investment has not recovered its pre - crisis level after such a long period ; it is in fact still 15 % below. that mixed picture for activity feeds into greater uncertainty over the outlook for inflation. while we expect headline inflation to gradually return towards 2 %, price pressures remain subdued. measures of underlying inflation have been drifting downwards since mid - 2012 and have remained at the lower end of our price stability range for nearly two years. and even if we see the output gap steadily closing, there is quite some uncertainty surrounding its measurement. looking forward, financial market prices suggest that inflation will remain below the ecb ’ s price stability aim for a protracted period of time

economic policy actions in terms of inflation expectations, a series of both demand and supply shocks in the euro area have led, at times, to a possible loosening in the anchoring of agents expectations of inflation. today, inflation expectations have only partially regained the values that would indicate a rapid and sustained adjustment in the path of inflation to levels closer to 2 %. in particular, we have seen, on occasions, longer - term inflation expectations responding to short - term movements in oil prices. that is unacceptable for a central bank, insofar as it implies that people ’ s expectations of its reaction function have become less certain. at the same time, the crisis has also left a mark on agents ’ expectations of economic activity. many countries are confronting a situation of disappointed growth expectations. for the euro area as a whole, 5 years ahead growth expectations among forecasters have been falling continuously since 2001, and during the crisis the distribution of those expectations has also widened, reflecting greater uncertainty about the lasting impact of the crisis on potential output. this matters for our policy insofar as lower expectations of future income feed back into the present and add to the forces weighing on against inflation. monetary policy cannot affect expectations about long - term growth : that is the task of governments introducing structural reforms. monetary policy can and must, however, anchor inflation expectations. indeed, when all the structural preconditions are in place for central banks to influence short - term real activity and limit excessive fluctuations in inflation – namely a negative phillips curve coefficient and a viable transmission mechanism – a responsible monetary policy has the capacity to deliver on its mandate of price stability. the ecb ’ s actions and communication internalise this responsibility. during the dark days of the crisis, many observers expected that the eu environment of diffuse macroeconomic authority would lead to strategic paralysis. instead, the ecb has risen to its responsibility of ensuring control over inflation in the medium - term, and has responded vigorously to any risks of inflation expectations becoming unanchored. we will continue to do so for as long as needed to bring inflation back to our objective. bis central bankers ’ speeches that being said, it is clear that all stakeholders in the fiscal and structural policy domains must play their part in ensuring a swift and sustained recovery. in particular, a concerted effort is needed to boost growth via increased investment. more investment in education and training as well as on r & d would put more of the labour force into work and foster new waves of innovation. in