appetite has benefited the hedge fund sector. by the end of october 2009, most hedge fund investment strategies have already recouped a substantial part, or even all, of the losses they suffered in 2008. cumulative average year - to - date investment returns at the end of october 2009 of all hedge fund investment strategies had almost all signs opposite to those reported for the whole of 2008 ( see chart 3 ). at the same time, after significant investor outflows in earlier quarters, preliminary estimates for the third quarter of 2009 suggest that the second quarter of 2009 may have marked the end of sectorwide investor outflows. iii. risks in the euro area non - financial sectors let me now focus on risks and vulnerabilities that we have identified in the non - financial sectors of the euro area economy. despite the considerable heterogeneity at the country level, the overall macroeconomic environment in the euro area has improved over the past six months. the decline in euro area economic activity has been sharp by historical standards since the third quarter of last year, but quarterly real gdp growth has recently turned positive ( see chart 4 ). in addition, the latest eurosystem staff macroeconomic projections show a gradual recovery in 2010, although the road ahead is likely to be uneven. among the risks stemming from the euro area non - financial sectors, i will highlight the main vulnerabilities in the corporate sector, specific fragilities in the commercial property market, and certain risks associated with the household sector. over the past six months, corporate profitability has remained very low and leverage ratios have generally increased, intensifying the balance sheet vulnerabilities of the non - financial corporate sector. in addition, banks have continued to apply conservative lending standards, albeit at a moderating degree. improvements in financial market conditions have allowed larger firms to partly substitute bank loans with market - based debt or equity. looking forward over the next few months, the overall balance sheet conditions are expected to remain challenging, as firms ’ access to external finance is not likely to improve significantly in the coming months, while profitability is likely to remain low. low profitability and high leverage are putting a severe strain on firms, making them less resilient to adverse shocks. as a consequence, some measures of corporate credit risk, such as unconditional expected default frequencies, remain high for most industries although they had declined recently for most sectors. ( see chart 5 ). conditions in the euro area commercial property markets

indebtedness raising concerns about the sustainability of the public finances, as well as the crowding out of private investment ; and • an adverse feed - back between the financial sector and public finances as a result of government financial system support measures, fiscal stimuli and weak economic activity. within the euro area financial system, important risks include the possibility of : • renewed financial strains and that the recent recovery of bank profitability will not prove durable ; • vulnerabilities of financial institutions associated with concentrations of lending exposures to commercial property markets and to central and eastern european countries being unearthed ; and • a setback for the recent recovery of financial markets, if macroeconomic outcomes fail to live up to optimistic expectations. all in all, the challenges facing the euro area banking sector in the period ahead call for caution in avoiding timing errors in disengaging from public support. in particular, exit decisions by governments will need to carefully balance the risks of exiting too early against those of exiting too late. exiting before the underlying strength of key financial institutions is sufficiently well established runs the risk of leaving some of them vulnerable to adverse disturbances, possibly even triggering renewed financial system stresses. late exits, on the other hand, can entail the risk of distorting competition, creating moral hazard risks that come with downside protection – including the possibility of excessive risk - taking – as well as exacerbating risks for public finances. to cushion the risks that lie ahead, banks will need to be especially mindful in ensuring that they have adequate capital and liquidity buffers in place. if the circumstances require it, some banks may need to raise new and high - quality capital. in addition, some banks, especially those which have received state support, may need fundamental restructuring in order to confirm their long - term viability when such support is no longer available. this could involve the shrinking of balance sheets through the shedding of unviable businesses with a view to enhancing their profit - generating capacities. at the same time, banks should take full advantage of the recent recovery in their profitability to strengthen their capital positions, so that the necessary restructuring of businesses and the enhancement of shock - absorbing capacities do not impinge materially on the provision of credit to the economy. thank you very much for your attention. i am now at your disposal for questions.