months. with regard to the broadly based outlook for price developments and risks to price stability, new information on indicators of future price developments and economic activity in the euro area continue to provide mixed signals. financial indicators such as the yield curve show that the spread between short - term and long - term interest rates has recently widened somewhat. this followed the decline in long - term interest rates in january to the lowest levels seen since the late 1940s. nevertheless, conditions for investment at the start of monetary union are favourable. this relates in particular to the prevailing low interest rate level, which significantly reduces the costs of financing for investors. recent developments appear to have led to a reduction in some of the uncertainties surrounding the evolution of the world economy in 1999. this mainly relates to the strong performance of the us economy. in the euro area the latest indicators confirm that those risks which were identified earlier have materialised to some extent. real gdp growth in the euro area, which weakened in the fourth quarter of 1998 compared with the previous quarter, suggests that activity has been slowing down in recent months. this assessment is supported by other indicators, such as decreasing capacity utilisation and industrial confidence, both of which have been on a declining trend since mid - 1998. by contrast, consumer confidence continues to present a favourable picture. the level of unemployment has remained more or less unchanged over the past few months. recent price developments are consistent with price stability. the latest data on the harmonised index of consumer prices show that the downward movement of inflation has stopped. the annual increase for february 1999 was reported to be 0. 8 %, the same as in the previous month. the current low inflation rate is partly due to substantial reductions in energy prices over the past half year, which have diminished somewhat very recently. decreasing unit labour costs have also made a significant contribution. in summary, the outlook for price stability remains favourable and, until now, we have not identified any significant upward or downward pressures on prices in the short term. on the downward side, the slowdown in the euro area economy is a cause for concern. on the upward side, increasing wage pressure and a relaxation of the fiscal stance could adversely affect the prospects for future price stability. furthermore, recent exchange rate developments will also need to be monitored closely in view of their impact on prices. in the absence of any strong upward or downward pressure on price developments, maintaining the current stance of monetary policy appeared justified. the governing council therefore decided last week that for the next

rules. in the first quarter, the return on equity ( roe ) rose to 9 per cent, from 1 per cent in the same period of 2020. in addition to the higher profits from trading activity, favoured by the sharp decline in risk premiums on government bonds, the increase in roe reflects the reduction in loan loss provisions, which was concentrated in those banks that had written down the most loans in the first quarter of last year. in the next few months, it is likely that new loan losses will emerge and roe will return to lower levels. however, the increase in new npls is expected to be smaller than that observed in previous recessionary periods owing to the support measures adopted by the government, the low interest rates linked with the still very expansionary monetary policy stance, and the positive economic outlook. signs of a deterioration in credit quality stem from the trend in loans made to borrowers for whom a significant increase in credit risk was observed ( classified as ‘ stage 2 ’ according to international accounting standards ), which at the end of march had reached 10. 3 per cent of the total, compared with 8. 7 per cent at the end of 2019. for italian banks classified as ‘ significant ’ for supervisory purposes, the share was 11. 2 per cent, almost 4 percentage points higher than the average for the corresponding european banks. a correct classification of loans and the consequent adjustment of loan loss provisions are essential as they preserve the transparency of balance sheets, thus avoiding any sudden increases in write - downs if defaults were to increase. however, there are still considerable differences in this respect between both significant and less significant banks. in order to verify the extent to which these disparities are justified by objective factors ( portfolio composition, actual creditworthiness of borrowers, and different contractual terms and conditions ), the european central bank and the bank of italy have initiated in - depth investigations, with a particular focus on lending to firms in the sectors hit hardest by the pandemic. under decree law 73 / 2021, passed in may ( ‘ sostegni bis ’ ), the moratoriums granted by law were extended to the end of 2021, for the principal amounts only and at the borrowers ’ request. by mid - june, loans subject to this measure were equal overall to just under €130 billion. over time, the amount of loans that can no longer benefit from the favourable treatment provided for in the eba guidelines is gradually increasing. banks will therefore have to