This brings us to the fundamental question - to what extent has the crisis affected the potential growth in the region, and what needs to be done to lift it to speed up the convergence which remains low in the region – just 37% of the EU average. Clearly, macroeconomic policies - fiscal and monetary, can play a growth supportive role, especially in the short-run, but they cannot be a substitute for structural policies needed to address structural bottlenecks across all long-term determinants of growth - labor, capital and total factor productivity. Now let me quickly reflect on the state of play of these long-term determinants of growth. Concerning labor, the region has been facing constant shrinking of working-age population - 0.5% on average, per year in the last nine years, mostly due to unfavorable demographics and emigration. If we take into account estimates that 1/3 of the emigration is high-skilled labor, then obviously, this is not only an issue of quantity, but quality as well. In this context, Global Competitiveness Report points to a large human capital gap of the region with an index rank of 62.2, compared to 16.7 for EU15. The health crisis emphasized even more the long-standing and burning issues that need to be tackled such as increasing participation rates (that currently hover around 54%), rising life expectancy, skill mismatches, and in particular digital skills and "jobs skills of tomorrow", although given the structural nature of the problem it will continue to weigh on the medium-term growth dynamics.
In particular, the employment growth rate has reached levels unknown since the start of the decade, and this has been duly reflected in the indicators of consumer confidence. Overall, the information available suggests the expansionary phase of euro area output will continue over the coming quarters, though possibly at a somewhat lower rate than in the first half of 2006. In any event, around the turn of the year the economic situation will foreseeably be perturbed by the temporary impact of the rise in the main VAT rate in Germany in early 2007. Against this background, medium-term risks of a growth downswing cannot be ruled out if the slowdown in the US economy becomes more intense. Adding to this uncertainty is the possibility that oil prices will resume the upward course interrupted in August and, over a longer horizon, that there will be a disorderly correction of the macro-financial imbalances between the main world areas. The most recent changes in the growth rate of the harmonised index of consumer prices have been much assisted by the marked decline in oil prices since mid-August and by the stripping out of the base effects from the previous year. These factors have meant that, for the first time since early 2005, inflation has stood below 2%, the ECB target (it stood in fact at 1.6% in October). Beyond the temporary variations in this variable, the index that excludes energy goods prices has also performed  BIS Review 117/2006  1  more favourably throughout the year.