to the medium - term outlook for inflation are on the upside. these risks include further rises in oil and agricultural prices. furthermore, taking into account high capacity utilisation and tight labour market conditions, wage growth may be stronger than currently expected, as well as the pricing power of firms, notably in market segments with low competition. moreover, administered prices and indirect taxes may increase beyond what is foreseen. at this juncture, it is therefore imperative that all parties concerned meet their responsibilities and that second - round effects on price and wage - setting stemming from current inflation rates are prevented. to that end, schemes in which nominal wages are indexed to consumer prices must be avoided. this is key to preserving price stability in the medium term and thereby the purchasing power of all euro area citizens. turning to economic activity, in the fourth quarter of 2007, real gdp grew by 0. 4 % quarteron - quarter, following a rise of 0. 8 % in the third quarter. incoming information confirms the picture of moderating growth. looking forward, ongoing growth is expected. the euro area economy has sound fundamentals and does not suffer from major imbalances. investment growth – while dampened by the global slowdown – should provide ongoing support. at the same time, employment and labour force participation have increased significantly and unemployment rates have fallen to levels not seen for 25 years. accordingly, consumption growth should continue to contribute to economic expansion. this assessment is reflected in the latest ecb staff projections, which foresee annual real gdp growth in the range of 1. 3 % to 2. 1 % in 2008 and of 1. 3 % and 2. 3 % in 2009. these ranges have been revised downwards, reflecting weaker global demand, stronger pressure from commodity prices and less favourable financing conditions than foreseen in december. in the view of the governing council, uncertainty about the prospects for economic growth remains unusually high. downside risks relate to a potentially broader than currently expected impact of financial market developments. further downside risks stem from the scope for additional increases in commodity prices, protectionist pressures and the possibility of disorderly developments owing to global imbalances. the monetary analysis confirms the prevailing upside risks to price stability at medium to longer - term horizons. on the basis of data available up to january, the underlying money and credit expansion remains strong, even taking temporary factors into account, such as the relatively flat yield curve. there is little evidence that the financial market turbulence since august 2007 strongly influenced the

the medium term. very much the same line of argument applies to the euro area. euro area real gdp has been growing at a high rate for four consecutive quarters, including the second quarter of 2000. some monthly indicators which extend into, or cover, the third quarter of this year point to a possible moderation in growth rates. in particular, the pace of growth in industrial production appears to have declined somewhat and some survey data have also indicated that there has been a certain degree of moderation. however, survey data remain at high levels and should be underpinned further by positive factors such as high employment growth. there is thus good reason to remain confident that strong growth will be sustained in the euro area. this picture is broadly supported by bond yields in the euro area. these have changed little over recent weeks. they continue to be compatible with market expectations of strong economic growth in the euro area in the medium term and with developments in consumer price inflation, which are in line with the ecb ’ s definition of price stability. we trust that this assessment will also increasingly be reflected in exchange rates. these have clearly lost touch with economic fundamentals and this is posing risks to the world economy. for the euro area in particular the continued undervaluation of the euro vis - a - vis other major currencies is putting upward pressure on import prices. we shall, therefore, monitor exchange rate developments closely. as regards developments in consumer prices, no additional euro area - wide data on the harmonised index of consumer prices ( hicp ) have become available since our last meeting. in september 2000 inflation rose to 2. 8 %, mainly as a result of higher energy prices. as i mentioned earlier, inflation rates may remain above 2 % for longer than was expected just a few months ago, owing to unexpected developments in energy prices and the past decline in the euro. in order to maintain price stability over the medium term it is important that economic agents accurately perceive the nature of current price developments. in particular, it needs to be recognised that current upward pressures can be successfully overcome if economic agents see them for what they are - namely, one - off or temporary price increases resulting from external factors - and act accordingly. these factors must not give rise to second - round effects. if oil prices do not rise further, as the markets expect, the effects of past oil price increases will gradually drop out of the annual inflation rate. at the current juncture two main considerations should guide expectations regarding the outlook for