[18] If, as is likely, both supply and demand weaken, the net impact on economic slack, and hence prices, will be more difficult to anticipate. The damage from the current crisis to the supply side is likely to be significant. [19] Energy-related production cuts and energy-saving measures directly curb potential output, while the sharp increase in gas prices will render some energy-intensive activities unprofitable.
Insolvencies may rise, and parts of the capital stock may become obsolete. Moreover, productivity growth may be slower than currently anticipated in our staff projections. Lower productivity growth would directly dampen the decline in real unit labour costs from lower real wages, meaning that inflationary pressures could remain elevated at current rates of nominal wage growth.