recovering moderately, albeit with some differences in growth by country. while peripheral countries in the euro area are registering low growth, large core economies, such as germany and france, are enjoying steady growth supported by increases in exports, particularly to the emerging economies, and private consumption. as for the outlook, the pace of economic growth in europe as a whole is likely to remain moderate, given that countries in the euro area are implementing austerity bis central bankers ’ speeches programs as part of their fiscal consolidation measures and because of the uncertainties regarding how the debt problems in countries such as greece will develop. in this environment, the european central bank ( ecb ) in april raised its policy rates for the first time since the lehman shock owing mainly to increases in international commodity prices. however, given the major risk factor presented by problems involving the credit risk of government bonds issued by peripheral countries in the euro area, the outlook for european economies, particularly greece, remains highly uncertain. while the issue of fiscal consolidation in europe and the united states has been gaining attention, let me touch upon the fiscal status of japan. although japan has the highest ratio of public debt to gdp among major industrialized countries, yields on japanese government bonds ( jgbs ) have remained stable at low levels. one likely explanation is that jgbs continue to command market confidence, despite japan ’ s grave fiscal situation. fiscal consolidation is not a task that can be achieved over a short period of time. it is therefore important for japan to steadily work on measures aimed at fiscal consolidation while market confidence regarding the creditworthiness of jgbs remains in place. b. japan ’ s economy following a v - shaped recovery after the lehman shock, japan ’ s economy had been on a moderate recovery trend, but the situation changed completely with the earthquake on march 11. the economy is currently facing strong downward pressure, mainly on the production side. although the preliminary results for the industrial production index for april show a small increase of 1. 0 percent from march – mainly due to progress in the restoration of supply chains – the level of production remains at only around 85 percent of that in february, that is, just before the earthquake. automobile production in particular dropped sharply, and the number of passenger cars produced in april marked a year - on - year decline of 60. 2 percent. in these circumstances, real exports have continued to decline, registering a 6. 9 percent fall in april from the previous month, due largely to the substantial decline in automobile

much less of a problem in australasia, impaired bank balance sheets in the northern hemisphere are casting a long economic shadow. some banking systems remain weighed down by non - performing loans, while markets for securitised loans are still largely moribund. financial institutions and their funders appear to have recognised the importance of robust funding, loss - absorption capacity and clarity about bank balance sheet exposures. the risk aversion in global credit markets is still reaching our shores via bank funding markets, in the form of elevated funding spreads and a heightened demand for local deposits. although these developments at least partly reflect a transition to “ new normal ” balance sheet structures, it is also possibly a sign that the pre - crisis model of highly leveraged and interconnected banking may no longer attract investors. that of course could be a helpful thing for macro - financial stability and for the rebalancing of non - bank balance sheets – provided it persists when good times return. the new environment creates some structural and strategic challenges for the global financial industry. much - reduced financial engineering and weaker financial institutions are likely to see some retrenchment of certain banking activities. also, with very low yields, financial institutions subject to obligations or strong expectations to pay fixed returns ( such as pension funds ) face pressure to increase holdings of risky assets, so they can support these returns. a renewed search for yield for these reasons raises the risk of excessive investment or bubbles in such lower quality assets. global spending and investment appear very cautious, and seem likely to remain so for some time, given the overhang of debt from before the crisis. in advanced economies, deleveraging in the private sector appears to have started, but will take a long time – perhaps a generation. very cautious households are a large part of the story of a slow and fragile recovery. they have been hit hard by sustained labour market weakness, and in the us and some other advanced economies this has been compounded by loss of housing wealth and balance sheet weakness. the apparently lower appetite for debt among new zealand and australian households is an interesting departure from the recent past, or perhaps a return to the more restrained standards of post - war years. in new zealand, this continues, despite an emerging pickup in housing market activity ( albeit off a very low base ). for example, new zealand household credit growth has traditionally tracked the value of house sales, but this relationship has loosened since the crisis. household caution is understandable given the restrained growth outlook,