Since the real economy and the financial system affect each other, a significant negative shock can be amplified beyond the first-round effects, as in the case observed in the latter half of the 1990s, when a vicious cycle occurred as the result of a more cautious lending stance, deterioration in economic activity, a subsequent increase in nonperforming  BIS central bankers’ speeches  3  loans (NPLs), and a further cautious lending stance.
Exactly when this will happen is difficult to predict. In our most recent forecast, we assume that private consumption will pick up a little over the coming year. On the basis of a very weak 1st half, we estimate output growth at only 0.3 per cent this year, rising to just over 1.5 per cent p.a. in 2013 and 2014.