very weak. according to the survey data for the last two months, there are tentative signs of a stabilisation in economic activity at a low level. looking ahead, we expect the euro area economy to recover very gradually in the course of 2012. the very low short - term interest rates and all the measures taken to foster the proper functioning of the euro area financial sector are lending support to the euro area economy. moreover, stress in financial markets has diminished in response to our monetary policy measures, but also in response to the progress made towards a stronger euro area governance framework and intensified fiscal consolidation in several euro area countries. however, subdued global demand growth, the remaining tensions in euro area sovereign debt markets and their impact on credit conditions, as well as the process of balance sheet adjustment in the financial and non - financial sectors, continue to dampen the underlying growth momentum. this outlook is subject to downside risks. they notably relate to tensions in euro area debt markets and their potential spillover to the euro area real economy. downside risks also relate to possible adverse developments in the global economy, higher than assumed increases in commodity prices, protectionist pressures and the potential for a disorderly correction of global imbalances. bis central bankers ’ speeches euro area annual hicp inflation was 2. 7 % in january 2012, according to eurostat ’ s flash estimate, unchanged from december. the average inflation rate for 2011 was 2. 7 %, mainly driven by higher energy and other commodity prices. looking ahead, inflation is likely to stay above 2 % for several months to come, before declining to below 2 %. this pattern reflects the expectation that, in an environment of weak growth in the euro area and globally, underlying price pressures in the euro area should remain limited. risks to the medium - term outlook for price developments remain broadly balanced. on the upside, they relate to higher than assumed increases in indirect taxes and administered prices, as well as increases in commodity prices. the main downside risks relate to the impact of weaker than expected growth in the euro area and globally. the monetary analysis indicates that the underlying pace of monetary expansion remains subdued. the annual growth rate of m3 decreased to 1. 6 % in december 2011, after 2. 0 % in november, reflecting a further weakening of monetary dynamics towards the end of the year. the annual growth rates of loans to non - financial corporations and loans to households, adjusted for loan sales and securitisation, also decreased further in december, and

in the spring of 2016, which you can see in the chart on the left - hand side, would, at least at face value, nurture such concerns. it suggests that there is at most a loose correlation between the actual pace of eurosystem purchases under the app – which has been gradually declining since april last year – and the intensity of cross - border capital flows. the persistence of policy - induced cross - border capital flows the chart masks important differences across investors, however. you can see this more clearly on my next slide. up until may this year, net capital outflows in debt securities have decelerated, by and large, as a result of a reduction in the pace of net sales by non - euro area residents – as you can see in the chart on the left - hand side. in april this year, non - euro area residents became net buyers of euro area long - term debt securities – in moving annual sums – for the first time in nearly three years. as non - residents have been important counterparties to the eurosystem in implementing the app, the gradual slowdown in their net sales of euro area securities may not be surprising. it is likely related to the step - wise reduction in the actual pace of eurosystem purchases. 3 / 7 bis central bankers'speeches euro area residents, by contrast, and this you can see on the right - hand side, have reduced their purchases of foreign securities to a much lesser extent. in fact, when we cut the monthly pace of our purchases from €80 billion to €60 billion in april last year, euro area residents increased their acquisition of foreign debt securities by more than 15 % over the following six months. even when we cut the monthly pace of purchases to €30 billion as of january this year, euro area residents remained important buyers of foreign securities. in the united states, and this you can see in the chart on the left - hand side of my next slide, euro area residents accounted for nearly 30 % of total us treasury purchases during the first half of 2018. in 2017, their share was 25 %. now, there is no simple answer that could help explain the observed investment pattern. some would argue that foreign securities – us treasuries in particular – offer a considerable yield pickup compared with comparable euro area securities. so it should not come as a surprise to see continued outflows from low - yielding euro area bond markets. but not all investors are willing or able to assume