immediately after the war was substantially eroded in a couple of decades. this period of strong growth in both output and productivity was interrupted in the early 1970s after the occurrence of – and according to some because of – the first oil shock. once again, however, the slowdown was a common trend across the atlantic, and europe continued to perform better on average, with labour productivity growth rates of almost 3 percent over the period from 1974 to 1994, compared to just over 1 percent in the u. s.. as a result, the catching - up process continued and the productivity gap was almost closed in the first half of the 1990s, according to available estimates. over the past decade, however, euro area productivity growth has been disappointing. from an average of 2. 7 % in the 1974 - 1994 period, it declined to just 1. 3 percent in the years from 1995 until 2006. at the same time, the rate of productivity growth in the u. s. increased strongly, from 1. 4 % to 2. 1 %, boosting significantly overall economic growth in the same period. by construction, labour productivity growth is the difference between the rates of growth of output and the labour input. euro area real output growth remained approximately constant at around 2. 2 % between the 1974 - 1994 and the 1995 - 2006 periods, while u. s. output growth rose from 2. 9 % to 3. 3 %. in light of the unchanged real output growth, the decline in euro area average labour productivity growth is mainly due to a switch in the growth rate of total hours worked from - 0. 4 % in the 1974 - 1994 period to + 0. 9 % in the years from 1995 to 2006. this contrasts with a decrease in the growth rate of u. s. total hours worked from 1. 6 % in the former period down to 0. 9 % in the latter. faster output growth and slower labour input growth have jointly contributed to increase measured labour productivity growth in the u. s.. these recent developments are in stark contrast to the rest of the post - wwii experience. first, they represent a break in the process of european catching - up and a resumed widening of the productivity gap with the u. s.. second, the broad tendencies across the atlantic are no longer aligned, so we cannot explain them with the occurrence of a worldwide adverse shock, such as oil in the 1970s. the roots of the european productivity slowdown must be found within europe. i will discuss three

of advanced economies. these are the “ the facts ” that have changed. today i ’ m going to discuss them in more detail, and explore our options for dealing with the challenges they present. “ the facts ” shifts in demographics and productivity growth have fundamentally altered the economic environment in which we operate. 1 / 3 bis central bankers'speeches starting with demographics, two changes have taken place : people are generally living longer, and population growth is slowing. dwindling birth rates are bringing population growth to a standstill. in oecd countries, population growth averaged over 1 percent back in the 1950s and 1960s, but it is now running at half a percent per year, and is expected to gradually fall before dipping into negative figures by 2070. 1 slowing birth rates mean fewer consumers and fewer workers. people planning on longer retirements will tend to save more. and while this is undoubtedly good news in many respects, an abundance in the supply of savings also has a big effect on the global economic picture. when it comes to productivity, there has also been a stark step - down in growth. rapid changes in the kinds of technology we use in our daily lives — robotic vacuum cleaners, self - driving cars, and facial recognition technology in our phones — may make this seem counterintuitive or plain wrong. 2 but the data are clear. in oecd economies, growth in labor productivity — the amount produced per worker hour — has averaged a little over 1 percent per year since 2005, about half the pace seen over the prior decade. falling r - star so what does all this mean for the future? two things : first, slower population and productivity growth translate directly into slower trend economic growth. second, an abundance of savings, and a decline in demand for savings resulting from slower trend growth, together lead to lower interest rates. all of these factors combined have contributed to dramatic declines in the longer - term neutral rate of interest, or rstar. while a central bank like the fed sets short - term interest rates, r - star is a result of longer - term economic factors. it ’ s the rate expected to prevail when interest rates are neither giving the economy a boost, nor slowing it down. that ’ s why it ’ s called the “ neutral ” rate. the evidence of a sizable decline in r - star across economies is compelling. the weighted average of estimates for five major economic areas — canada, the euro area, japan, the united kingdom, and