For sure, potential output estimates are chronically unreliable and often subject to substantial revisions ex post. Faced with the despair of failure, we often tend to underestimate our ability to overcome crises – a phenomenon I will return to in a minute. Moreover, recessions often tend to have a permanent effect on the level of potential output. It is much less clear, however, whether the crisis will also leave a permanent footprint on the trend 1/9  BIS central bankers' speeches  potential growth rate – something Laurence Ball called “super-hysteresis” effects. In fact, on the right-hand side of the first slide you can see that potential output growth had been slowing in the euro area well before the crisis, mainly reflecting a long-term slowdown in total factor productivity (TFP). So the question I would like to ask today is not so much why potential output growth appears to be decelerating in the long run, or whether we are entering a period of secular stagnation – the jury is still out on this. It is whether the crisis, and the persistent shortfall in aggregate demand, has accelerated, or not, the decline in potential growth. The first point to consider is whether the crisis has had a significant effect on labour participation – that is, the size of the total labour force. Hysteresis effects might be caused by unemployed workers becoming discouraged and discontinuing their search for employment, leading them to become detached from the workforce and lose their skills over time.
Both are intended to make Swiss franc investments less attractive, thereby easing pressure on the franc. This is important given that the franc remains significantly overvalued. Our expansionary monetary policy is aimed at stabilising price developments and supporting economic activity. Our new conditional inflation forecast suggests that inflation will rise faster over the coming quarters than we predicted in March, principally due to the significant increase in oil prices in the intervening period. The effect of this oil price rise on annual inflation vanishes after the first quarter of 2017. The new conditional forecast moves closer to that of the last quarter from then on, and is in line with it from 2018. This forecast shows that our expectations for the medium-term development of inflation and the Swiss economy remain essentially unchanged. At –0.4%, our inflation forecast for the current year is 0.4 percentage points higher than in March. For 2017, we expect inflation to be 0.3%, somewhat higher than assumed in the previous quarter. For 2018, we continue to anticipate inflation of 0.9%. The conditional inflation forecast is based on the assumption that the three-month Libor will remain at – 0.75% over the entire forecast horizon. Global economic outlook Since the assessment of the inflation and economic outlook for Switzerland is heavily influenced by economic developments abroad, let me now present our assessment of the global economy. The moderate recovery in the global economy is continuing, supported by ongoing highly expansionary monetary policy worldwide.