global economy. thus, suggestions have been voiced to adapt the german “ business model ” and reduce reliance on exports. however, these arguments neglect the fact that germany is not a company with a business model that management can change at will. in the end, it is the decisions of thousands of individual companies that determine the structure of an economy. in any case, i have doubts that turning away from global markets would strengthen the german economy. facing global competition ensures that german companies keep up with technological progress and retain their high productivity. this might come at the price of higher volatility, but to me this seems like a price worth paying. having said that, the german economy would certainly profit from strengthening competition in the domestic market as well. take the services sector as an example. for the last 20 years, total factor productivity growth in services has been markedly lower than in bis central bankers ’ speeches manufacturing. in fact, while total factor productivity in manufacturing has grown by more than 30 %, growth in services has barely budged. what is behind this phenomenon? the data point to a higher degree of competition in the manufacturing sector following the launch of the common market : mark - ups, an indicator of the pricing power of firms, have gone down since then. by contrast, mark - ups on services have stayed high in germany, higher even than in many other european countries. thus, there is room to improve the functioning of the services sector by promoting competition : opening up closed professions, cutting red tape, and improving financing conditions for nascent digital firms would be options to achieve this objective. but still, over the last two years or so, domestic drivers of growth have strengthened in germany. this is certainly good news, as the basis for growth has become broader. the good shape of the german economy is also reflected in more recent developments. last year, the economy regained momentum after a brief dip in late 2012 and early 2013. and in the first quarter of this year, the economy grew by 0. 8 %, while the euro area as a whole grew by 0. 2 %. however, the strong growth in the first quarter was boosted by favourable weather conditions. consequently, we expect growth to be weaker in the second quarter. overall, the german economy is back within the normal range of capacity utilisation. against this backdrop, what can we expect from the future? well, the internal drivers of growth i mentioned will remain in place while foreign demand is likely to pick up again. as

outflows of capital. some of them will have to undertake structural reforms and consolidate their public finances. this brings us to the second challenge : developments in public finances. this topic is relevant for the us – just think of the government shutdown and the risk of eventually reaching the debt ceiling –, it is relevant for japan and it is certainly relevant for the euro area. ultimately, high government debt impedes economic growth and endangers financial stability. bis central bankers ’ speeches the third challenge is the dampened outlook for emerging market economies. this will shift the global pattern of growth toward advanced economies and will require emerging markets to adjust. 4. regulatory reform now, we have talked about the global economic outlook and we have talked about challenges for economic policy. this leaves us with the third topic that will be relevant for this year ’ s annual meeting : institutional reform. let us take a closer look at the reform of financial regulation. here, we have already made good progress. we have, for instance, agreed upon new capital requirements for banks. these will make banks more resilient against shocks, thereby enhancing financial stability. but we have not reached the end of the reform process. two topics are currently of interest. the first is the issue of shadow banking. shadow banking refers to financial institutions that operate outside the perimeter of traditional banking regulation. we might also use the term “ non - bank banks ”. money market funds or hedge funds are typical examples. as these entities might be a source of systemic risk we have to deal with them in terms of regulation. this issue has already been discussed at the g20 summit in st. petersburg in august. progress has been made and shadow banking will remain high on the reform agenda. the same is true of the “ too big to fail ” problem. this refers to banks which are so big that their failure could bring down the entire financial system. just think about what happened when lehman brothers failed in september 2008. what we need are restructuring mechanisms that will allow such banks to fail without disrupting the whole system. at the conceptual level, we have already made good progress. now, we have to implement the new measures. 5. conclusion ladies and gentlemen, many issues will be discussed at this year ’ s annual meeting of the imf and the world bank. i have highlighted a few of them but left out others. in the context of the imf, there will certainly be debates on quotas and governance. at the same time, there