As the world economy as a whole is feeling the adverse effects of the intensified and prolonged financial market turmoil, the most recent data clearly confirm that economic activity in the euro area is weakening, with contracting domestic demand and tighter financing conditions.
This anxiety appears to be driven by three factors: First, some asset prices, such as housing prices, seem to be high by historical standards. Given the substantial decline of stock prices beginning in 2000, many observers worry that greater boom or bust cycles in some asset prices could be the "flip-side" of the moderation of real economic volatility during recent decades.