##able funds, which have to be matched by savings. seen over the long - term, the growth rate of total factor productivity ( tfp ) has been slowing in the euro area for decades. population growth has also declined from about 0. 7 % in the early 1970s to around 0. 3 % in recent years. and looking into the very distant future, the downward pull from adverse demographics could accelerate : some model - based simulations suggest that demographic trends – notably a rising supply of funds provided by an ageing population – could result in a significant reduction in the real rate in the long - run. 6 alves, i., j. brinkhoff, s. georgiev, j. c. heam, i. moldovan and m. scotto di carlo ( 2015 ), “ network analysis of the eu insurance sector ”, esrb occasional paper no. 7 ( july ). for this section see charts 1 – 12. kara, e. and von thadden, l., interest rate effects of demographic changes in a new keynesian life - cycle framework, macroeconomic dynamics, forthcoming, ( published online : 14 july 2014. ) bis central bankers ’ speeches on top of the gravitational pull of these secular forces, there are cyclical factors weighing on real interest rates that are more directly linked with the global financial crisis. notably, the euro area is still working its way through a “ balance sheet recession ”, where a situation of severe debt overhang sets the conditions for a sharp downturn, which in turn creates the need for substantial deleveraging and prolongs the length of the slump. this is the product of a pre - crisis period where, misreading the signs of declining productivity growth, firms, households and in some cases governments accumulated excessive debt on the basis of overly optimistic real income expectations. the result has been excess savings in the post - crisis period caused by the need for all three sectors to repair their balance sheets, while over - indebted firms and households in some countries have been confronted with higher credit premia, further depressing investment. investment indeed remains well below pre - crisis levels. the damage caused to the economy by these dynamics has been massive. youth and longterm unemployment has risen significantly in the euro area, with “ hysteresis ” effects estimated to have notably reduced labour supply. this feeds back into a slower potential growth rate, and potentially for some time, given the strong sectoral dimension to the crisis and the

as a commonly observed feature, households in japan and the euro area tend to perceive that the present price level represents an increase – except for a short period immediately after the global financial crisis – and they tend to expect higher price levels about one year ahead ( charts 9 and 10 ). moreover, those households commonly tend to expect to spend less in the near future. from these features, it may be said that households plan to reduce their spending about one year ahead because they expect a tighter budget as a result of expected higher prices. a different feature is evident with regard to the relationship between actual price performance and households ’ present price perception ( as well as their one - year - ahead price expectation ). in the euro area, households ’ present price perception and price expectation dis are roughly in line with actual price performance. by contrast, japanese households ’ present price perception ( except for a short period immediately after the global financial crisis ) and price expectation dis remained positive even when mild deflation prevailed from 2009 to mid - 2013. more recently, despite the rate of change in the core cpi having dropped to around 0 percent, the rising trend in the present price perception di has been firm and the relatively high level of price expectation di has been sustained. thus, japanese households ’ price perceptions and expectations constantly differ from the movements of official price statistics. on this front, it is known that japanese households ’ price perceptions and expectations are heavily affected by the price movements of daily necessities and gasoline, resulting in an upward bias. this could be interpreted as a sign of a strong defensive action against the anticipated tighter budget. if so, households may perceive a rate of actual inflation of much higher than 2 percent in the process of approaching the 2 percent target, and regard such price rises as unacceptable. thus, it is important for the boj to promote public understanding that its objective is to achieve a moderate price rise and a sustainable increase in household spending. additionally, households ’ tolerance for price rises needs to improve in accordance with a sustainable income rise. d. euro area firms ’ price expectations becoming comparable with those of japan with respect to firms ’ price expectations, the sales price expectation di for three months ahead is available from the boj ’ s tankan ( short - term economic survey of enterprises in japan ) and the european commission ’ s surveys ( chart 11 ). one interesting finding is that in japan, firms ’ sales price expectation di has fluctuated in negative territory since the first half of the 1990s, when