Business investment is also gathering steam as uncertainty in the euro area recedes. It now stands 7% above its pre-crisis level and surveys point to continued strong investment demand: capacity utilisation in the capital goods-producing sector is close to all-time highs for the euro area and for the four largest economies.
First, I will consider the impact on banking business. In a situation where nominal interest rates on lending are on a decreasing trend, but deposit rates cannot fall below zero, banks' profits are squeezed through a reduction in net interest income.