the greater the likelihood we end up in more adverse scenarios. this is why we are continually monitoring the incoming data and updating our analysis accordingly. this is a challenging situation for cyprus, too. the country will be affected by the inflationary pressures from higher energy costs owing to its dependence on oil imports for power generation. 3the tourism sector will also see dwindling numbers of visitors from russia and ukraine, which represented 27 % and 5 % of total arrivals in 2021 respectively. in addition, given the importance of cyprus as a hub for foreign direct investment to and from russia, professional services such as accounting, consulting and legal services are also expected to be affected. however, the fundamentals of the cypriot economy have grown stronger over the last few years thanks to the hard work accomplished after the banking crisis in 2013. in particular, nonperforming loans have fallen from about 50 % of all loans in 2014 to single digit percentages at the end of last year. overall, the banking sector is highly capitalised and liquid and exposures to russia are contained. implications for policies with the right policy response, we can mitigate the economic consequences of the war and manage the high levels of uncertainty we are facing. to offset the short - term effects of higher energy prices and sanctions, national fiscal policies have a range of tools to deploy, such as tax cuts and subsidies. and rules at the eu level are being loosened so that governments can take the necessary measures to protect their people. the additional fiscal measures announced in the euro area4 since the invasion amount to 0. 4 % of euro area gdp this year. similarly, cyprus is acting to reduce taxes on energy and to diversify tourism flows via new flight routes and schemes to encourage domestic tourism. but in the longer term, we need a european approach, working across borders, to adjust to the post - invasion world. the war has underlined the deep strategic vulnerabilities in our security and trade relationships, which we can only address by being more united. this is rightly bringing europe ’ s objective to achieve “ strategic autonomy ” to the forefront. the european commission has already announced some ambitious goals, such as doubling europe ’ s share of the global market for semiconductor production to 20 % by 2030. last week, europe ’ s leaders agreed to reduce demand for russian fossil fuels and bolster our energy security by diversifying liquefied natural gas ( lng ) supplies and investing more in clean energies. 3 / 5 bis central

is welcome, but it ’ s only the most tangible part, i. e. technological innovation, which is typically recorded. business model innovation is excluded. what ’ s more, investment in organisational capital and human capital are not recorded in national accounts, even though this will become ever more important part of capital growth as more jobs become automated and skill premia rise. even more complex is how to measure the value of digital innovations in terms of, say, the time they save for consumers or for national output. how should we value the ability to conduct banking via a smart phone? or get directions through google maps? 5 this isn ’ t just a question of the so - called “ consumer surplus ”, which is about welfare. it ’ s a question of whether improvements in quality are being properly valued. and as more and more services are provided in this intangible way, the likelihood of significant mismeasurement of the full value of goods and services in our economies rises. the flipside of digital services is that more activities that were previously part of the market economy can now be produced at home. a person wanting to arrange a holiday, for example, no longer needs to visit or phone a travel agent, but can research and book the whole trip herself online. the sales of hotels and flights still contribute to gdp. but the work formerly done by the travel agent, which has now effectively been outsourced to the consumer, disappears. this also raises questions for how we measure productive activity. these examples highlight the difficulties of understanding how the economy is developing – let alone estimating its potential growth rate. to be sure, we should aim to rise to that challenge and update our statistics to capture such changes. but clearly, as policymakers, we also have to be humble about what can know. and in that context, imagining that we can reliably hold the output gap around zero is simply hubris. see : olivier blanchard, eugenio cerutti and lawrence summers, inflation and activity – two explorations and their monetary policy implications ”, imf working paper wp / 15 / 230 ( november 2015 ). see : erik brynjolfsson and andrew mcafee, the second machine age : work, progress, and prosperity in a time of brilliant technologies ( w. w. norton & company, 2014 ), especially chapter 8. https : / / www. gov. uk / government / uploads / system / uploads / attachment _