In the Euro Zone and Japan, partial indicators show that the third quarter GDP growth has strengthened after the contraction of the economic activity in Japan during the second quarter. However, consumption is still weak in both zones and, especially in the Euro Zone, financial conditions have also been deteriorated with potential effects on consumption and investment. In this sense, confidence indicators so much for consumers as for firms are showing less favorable perspectives. Despite the still uncertain effects that the adjustment of global financial markets would have, projections of the world GDP growth have already been reduced (moderately). It is not a surprise that these reviews affect chiefly projected GDP growth of industrial economies. The World Economic Outlook, presented by the IMF today, reduces the forecast for World Economy growth for 2008, by half a percentage point, to 4.8%, with a forecast for the US  BIS Review 120/2007  1  GDP growth of only 1.9%. In the same report, growth projections for the Euro Zone and Japan are also corrected downward for 2008. Corrections for emerging economies are marginal, particularly for China, India and Russia. In spite of adjustments in global financial markets and of reductions in the GDP growth perspectives for advanced economies, the appreciation of stock markets in emerging countries is surprising. Apparently, markets have anticipated that the deceleration of industrial countries will have reduced the effects on these economies and their financial conditions will not deteriorate as much.

Even though handling procedures for credit claims are sometime more cumbersome, counterparties show an increasing interest for this asset class with very low opportunity cost. The bottom line of these figures is that the increasing use of lower opportunity cost collateral shows that a growing number of counterparties are becoming more active and efficient in managing their collateral, and thus their liquidity. Finally, the recent market turmoil provided tangible evidence that the collateral framework of the Eurosystem is broad enough to ensure that counterparties do not face collateral shortages, even in difficult situations. Where do we stand today? The degree of uncertainty concerning risk – where is it?, how much?, at what price? – is declining with every forthcoming disclosure. Some asset classes have already fully recovered their risk appetite. Bank profits will be impacted, but their capacity to absorb adverse developments has also been strengthened by buoyant results over the last years. However, we are not back to normal yet, especially in the unsecured interbank term money market. We are not fully safe from a low probability but potentially high impact negative event. Before drawing some tentative lessons, let me add that there is no trade-off between liquidity provision and monetary policy, with its primary objective of maintaining price stability to which we are resolutely attached. III. Key issues  At the international and at EU level a tentative agenda is emerging around 4 axes for further examination. First: Transparency Enhance transparency for investors, markets and regulators (including improvements at the level of data reporting).