on labour supply. additionally, without a significant increase in retirement age, employment rates are likely to be lower since they follow a life cycle pattern, being lower at ages close to retirement. more interesting and controversial are the implications of population ageing for productivity growth. there are empirical reasons to worry about the negative consequences of an older labour force for productivity growth. some studies have documented lower innovative activities in firms with older workers. there is also the presumption that in countries with older populations, there is less entrepreneurship. this is not only because older people tend to be less entrepreneurial, but also because younger people themselves are less entrepreneurial in countries with older populations. whatever confidence we may place in these hypotheses, the fact of the matter is that in advanced countries, even though more resources are devoted to r & d, indicators of innovation such as the number of patents are on a declining trend. admittedly, some new technological developments ( such as digitalisation, robotics and artificial intelligence ) could be a source of faster productivity growth. and plausibly, population ageing may actually promote automation. but eventually automation can only progress insofar as new ideas ( so - called product innovation ) emerge. whatever the net effect on productivity, with the evidence we now have on the association between demography and growth in advanced economies in recent decades, we should not rule out the possibility that population ageing might significantly decrease potential output growth. given population projections, extrapolating the observed association into the coming decades yields declines of output growth of about 1 percentage point ( pp ) until 2030, and close to 2 pp in countries where the demographic transition will accelerate in the years ahead. and recent observations on productivity growth are not very encouraging. whatever the measurement used ( either labour productivity or total factor productivity ) there is a clear productivity slowdown in most advanced economies during the last two decades, even though total factor productivity growth has recovered somewhat in the last one. there is some discussion about to what extent this global productivity trend is due either to missmeasurement, to the delay in the diffusion of the new technologies and of their potential effects, or to more fundamental reasons, such as a slower innovation rate. nevertheless, we cannot take for granted that productivity growth could compensate for the negative effects of population ageing on potential growth. population ageing may also affect trend inflation. there are several reasons, some, but not all, of them having to do with composition effects in the basket of

sizable spending cuts and, more importantly, adjustments to long - term expenditures, in particular to the pension system, all of which will have a strong positive impact on the long - term sustainability of public finances. but the success of the adjustment will depend first and foremost on achieving a solid and sustainable growth rate. this goal requires implementing the necessary structural reforms to increase productivity and the efficiency of the economy, and establishing a more balanced and stable pattern of growth. the most important of these reforms have already begun to be introduced, in particular those bearing on the labour market and the financial sector, but continuous progress is needed. the third pillar of the spanish action plan is the restructuring of the financial sector and its adaptation to an economy less dependent on credit and leverage for growth. restructuring turns on two essential aspects : the downsizing of the banking sector as a whole, and maintaining a sufficiently large backstop as to ensure the capital that is required, but using only that necessary so as not to overburden public debt, no matter how small the spanish public debt is. the hard times that characterise a protracted process of economic and financial adjustment are familiar to many latin american countries, which have experienced sovereign and banking crises over the past decades. but they have avoided it this time. indeed, latin america has proved outstandingly resilient at a time of global hardship, as too have many emerging economies – perhaps with the exception of some eastern european countries. before the crisis, most latin american countries had dramatically reduced their vulnerabilities, precisely as a result of the lessons learnt in the previous crisis. accordingly, there were no severe problems of overborrowing or external imbalances of the sort experienced by industrial countries, and the current adjustment, while significant in size, has been swift. recovery in asia and latin america is proving strong and driven increasingly by domestic demand. all in all, improved fundamentals relative to industrial countries have placed emerging market economies in a much better position to resume high levels of growth. going back to a debate that was popular in the first half of 2008, we can say that, after all, emerging countries have been able to “ decouple ” from the dire growth prospects of advanced economies. but it is still uncertain whether solid growth in emerging economies can be sustained over the medium term if external demand from major industrial economies remains subdued for a protracted period. moving one step forward, we can ask to what extent emerging economies can act as an effective engine for growth in