Despite ultraaccommodative monetary policy, most advanced economies have not attained so-called escape velocity. •  The legacies of the financial crisis – in the form of debt overhangs – continue to exert a drag. •  The structural deficiencies in the major economies, such as under-investment, cast a dark cloud on future potential growth. But one thing that ultra-low interest rates over the past six years have clearly done is to depress returns, particularly in fixed income assets. •  US bond returns since 2009 has averaged 2.3% p.a. compared to returns of 5.8% p.a. over the past 20 years. This has contributed to a more challenging investing environment for government funds – namely pension funds, sovereign wealth funds, and central banks – many of which have significant allocations to developed market fixed income instruments. Mean reversion is a key tenet of investment theory – the expectation is that as interest rates normalise, returns should revert to pre-crisis levels. But the cliché that this time is different could well be true. Secular trends weigh on future economic growth, and consequently the real return on investment. Drivers of future economic growth What are the prospects for future economic growth? There are, in my view, four key drivers of long-term growth: deleveraging, demographics, productivity, and energy. Let me elaborate on each of them. First, deleveraging. Global balance sheets need to undergo significant adjustments. This is a structural issue that will take time to address.
This assessment derives from studies conducted by the Eurosystem but also from the reports published by “ECB Watchers”, with whom, incidentally, the ECB has regular contact, notably in the context of annual conferences. Research carried out by these “ECB Watchers” show for example that on average, the Eurosystem’s monetary policy decisions were very well anticipated by financial markets, whatever their orientation, at least two weeks in advance, and fully factored in at least a week before. A comparison with the Fed, moreover, does not reveal significant differences between the two institutions with regard to the ability of markets to anticipate the monetary policy decisions of the two institutions. That points to the transparency of the single monetary policy. In particular, the fact that the ECB has chosen channels other than the publication of  BIS Review 113/2007  7  minutes of the meetings of the Governing Council has not prevented it from reaching a high level of predictability. As regards the frequency, since the inception of the euro in 1999, the Eurosystem has changed its policy rates 25 times (8 cuts, 17 hikes), which is on average close to the usual average frequency of interest rate changes 1 . However, compared to the Federal Reserve, in particular since 2001, the frequency of the changes is by far lower. Does this necessarily imply that the Eurosystem does not move enough or too low?