The Quarterly Report series features concise research by European Commission staff on economic and financial topics relating to the euro area.

In its focus section, the December 2011 edition of the Quarterly Report presents new empirical insights into the drivers of total factor productivity (TFP) growth. It shows that a significant part of the deceleration of trend TFP in euro-area Member States can be explained by changes in the skill composition of the labour force as well as by trends in domestic and foreign knowledge capital stocks. In particular, most Member States show a declining contribution from skill improvements to TFP. In many euro-area Member States, the contribution of knowledge capital to TFP has been depressed by adverse trends in domestic knowledge investment. Finally, the analysis also stresses the importance of cross-border knowledge spillovers.

Further special topics in this Quarterly Report are devoted to themes surrounding the economic outlook. An analysis of euro-area households’ savings behaviour since the onset of the global economic crisis concludes that the current level of the saving rate is broadly in line with its fundamental drivers. Looking forward, however, there is a risk that households respond to adverse asset price developments, worsened confidence and stricter bank lending practices by ramping up precautionary savings. The report also examines this year's elevated consumer price inflation, finding that energy and other commodity prices as well as measurement issues accounted for much of the inflation volatility in 2011. A final topic examines how typically fast-growing emerging market economies will be affected by the slowdown in advanced economies. Despite some earlier signs of decoupling, emerging market growth is likely to be dragged down in recessionary periods in advanced economies, notably via confidence spillovers as well as trade and financial linkages.

Highlights in this issue:

• Focus: The knowledge drivers of total factor productivity
• The impact of the crisis on household savings in the euro area
• Accounting for inflation dynamics in the euro area
• How vulnerable are emerging market economies to the slowdown in advanced economies?