The earlier adjustment of the Chilean economy, in terms of both private expenditure and the monetary policy reaction, meant that for the larger part of 2014 our currency was one of the most depreciated globally. Subsequently, as the rest of the emerging economies entered a more marked adjustment cycle, those differences narrowed and the peso even appreciated in multilateral terms (figure 4). As of March, the real exchange rate is somewhat above its average for the last two decades (figure 5). Domestic activity has behaved as foreseen in December, although last year closed with somewhat higher growth than forecast in the previous Report: 1.9 percent. Revisions to earlier figures and a somewhat stronger fourth-quarter growth explain this result. Partial firstquarter figures continue to reveal moderate growth, but definitely better than the figures it showed since mid- 2014. On the demand side, there is no big news either with respect to the end of last year. Aside from specific factors, consumption and investment remain weak. Durable consumption and investment in machinery and equipment continue to grow at low or negative annual rates, albeit with some marginal stability. Anyway, it is worth noting the greater impulse from fiscal spending, particularly public investment, and the positive effect of the peso depreciation in the productive performance of some tradable sectors. The labor market continues to show more strength than previously foreseen. The unemployment rate, despite a marginal increase, is still low.

This could foster further consolidation, including across borders, and address the problem of overcapacity in the euro area banking system. Assessing the financial stability of the euro area Beyond regular monitoring activities, financial stability analysis entails assessing the impact on the financial system of risks materialising, including risks related to international spillovers. Such assessments can also help inform the calibration of possible appropriate macroprudential policy responses. The stress-testing framework is an important analytical tool to quantitatively assess financial system vulnerabilities and risks. Stress testing exercises of the banking sector assess the sector’s resilience and how it performs under adverse circumstances, thus providing a measure of the severity of these risks. Individual bank results provide further information about banks’ potential capital needs. Stress tests can therefore show how the financial system will react when risks, such as those relating to spillovers, materialise. In order to enhance its stress-testing capacity, the ECB has invested in an analytical framework that not only tracks the resilience of the banking sector but also accounts for how it interacts with and feeds back in to the economy as a whole.8 This framework complements the EU-wide stress tests conducted under the aegis of the European Banking Authority (EBA), which are predominantly microprudential in nature. Our so-called macroprudential stress testing loosens the assumption that banks’ balance sheets are constant. As banks are hit by, say, negative (spillover) effects from the global environment, they may react by deleveraging their loan books.