and, notably, exaggerated beliefs in the profitability of emerging technologies. but the strength in business investment that the boom brought with it also had important implications for the supply side of the us economy, through its influence on the rate of increase in labour productivity and thus the economy ’ s sustainable level of potential output. ecb staff calculations estimate that the contribution to the growth of output per hour worked coming from capital deepening doubled in the united states in the course of the 1990s. subsequently – and despite the sharp reappraisal of those expectations and the unprecedented drop in business investment that followed the market collapse in 2000 – it stabilised at the elevated levels that it had reached at the turn of the millennium. since then, remarkably, capital deepening has been replaced, as the main engine of output per hour growth, by extraordinary advancements in total factor productivity ( tfp ). arguably, us firms have been able to meet expanding demand with a more efficient organisation of the production processes. the same ten - year episode had a distinctly different face in the euro area. the stock market appreciation – comparable in size to that seen in the united states – went hand in hand with a decline, not a rise, in the contribution of capital to measured productivity. and a contemporaneous steady decline in tfp throughout the decade has reinforced, rather than offset, the diminishing contribution of capital. 5 the euro area seems to have had its fair share of stock market turbulence, without enjoying the side benefit of improved supply conditions. the slowdown in trend productivity has been a primary determinant of the weak economic performance of the euro area. by depressing income growth prospects and by reducing the prospective return on capital, it has held back consumption spending and business investment, which has been further curtailed to some extent by the ongoing demographic shift towards a more elderly population. 6 rapidly decelerating productivity was one force behind the counter - cyclical rebound in unit labour costs that we observed during the early part of the new millennium. [ see figure 2 ]. this surge in unit labour costs was atypical, if contrasted with the way in which unit labour costs in the united states elastically responded to the downturn with a sharp decline, and it represented an ongoing source of inflationary pressures. adverse underlying developments in productivity have made it more difficult for our firms to smooth through the volatility of the many non - wage cost disturbances that they have encountered since 1999. this lesser degree of resili

take inflation higher. first, energy prices are expected to stay higher for longer, with gas prices up by 52 % since the start of the year and oil prices up by 64 %. second, the pressure on food inflation is likely to increase. russia and ukraine account for nearly 30 % of global wheat exports, while belarus and russia produce around a third of the world ’ s potash, a key ingredient in producing fertiliser, thereby exacerbating supply shortages. third, global manufacturing bottlenecks are likely to persist in certain sectors. for example, russia is the world ’ s top exporter of palladium, which is key for producing catalytic converters. 1 ukraine supplies around 70 % of the world ’ s neon gas, which is critical for semiconductor manufacturing. at the same time, the war poses significant risks to growth. as the euro area is a net importer of energy, rising energy prices mean a loss in purchasing power for consumers here and a gain for our import partners. this effect already reduced income by 1. 2 % of gdp2 in the fourth quarter of 2021, compared with the same quarter in 2019 before the pandemic. expressed in euro, that figure would imply a loss of about €150 billion in one year. the conflict is also starting to drain confidence through at least two channels. first, households are becoming more pessimistic and could cut back on spending. consumer confidence this month has fallen to its lowest level since may 2020 and stands well below its long - term average. based on national surveys, households ’ expectations of growth have worsened, while their inflation expectations have risen. this suggests that people are expecting to see their real 2 / 5 bis central bankers'speeches income ( i. e. their income adjusted for inflation ) squeezed. households are likely to save less, which should absorb part of this shock, but they have also revised down their spending plans. second, business investment is likely to be affected. the latest survey data suggest that business activity held up relatively well in march, but firms ’ expectations in a year ’ s time fell sharply. suppliers ’ delivery times, capturing manufacturing supply disruptions, also deteriorated again. how much inflation rises and growth slows will ultimately hinge on how the conflict and sanctions evolve. reflecting this uncertainty, at the last governing council meeting ecb staff prepared different scenarios to capture some of the possible outcomes. clearly, the longer the war lasts, the higher the economic costs will be and