to the banking sector and a resulting decline in the supply of bank credit, as they would be able to draw on other – market - based – funding sources. but this can only happen if market - based finance remains resilient in the face of such a shock. the benefits of a growing non - bank financial sector are currently accompanied by potential vulnerabilities. in search of higher yields, non - banks have accumulated more credit and liquidity risks on their balance sheets. this renders them more vulnerable to the low credit quality and high indebtedness in some segments of the corporate and government sector. moreover, nonbanks may be contributing to the current cyclical underpricing of risk and helping to amplify the upswing in the wider financial cycle. this is partly because non - banks are subject to lighter regulatory constraints which in some cases allow them to take on more risks. if risks were to unwind in a disorderly manner we could see funding flows dry - up and funding conditions in the real economy affected more broadly. if we were to reap the benefits of a deep and integrated european capital market, then, non - bank financing needs to develop in a sustainable manner. in this changing environment, it is important to strengthen our risk identification and monitoring framework. international cooperation is needed to develop tools for stress testing but now at system - wide level, in the form of models that incorporate both banks and non - banks, consider feedback and amplification from the 3 / 4 bis central bankers'speeches interaction between sectors and look for tipping points and non - linear responses. from a regulatory perspective, at least two lines of defence are needed to counter evolving risks. first and foremost, prudential standards must remain solid in the non - bank financial sector. but this alone will not be sufficient if risks evolve more broadly and across institutions. an extension of the macroprudential toolkit to the non - bank financial sector is needed, thereby providing the authorities with the means to address risks at the system level. while the macroprudential framework for banks is relatively well developed and gives authorities tools with which to address cyclical and structural systemic risks, the framework for non - banks is still in its infancy and needs further development. such a framework would need to be capable of identifying and addressing the key fragilities and externalities stemming from the non - bank sector, and provide authorities with the tools that would allow them to achieve this in an efficient and effective manner

area expansion is also supported by favourable financing conditions, further employment gains and rising wages, the mildly expansionary euro area fiscal stance and the ongoing – albeit somewhat slower – growth in global activity. this assessment is broadly reflected in the september 2019 ecb staff macroeconomic projections for the euro area. these projections foresee annual real gdp increasing by 1. 1 % in 2019, 1. 2 % in 2020 and 1. 4 % in 2021. compared with the june 2019 staff macroeconomic projections, the outlook for real gdp growth has been revised down for 2019 and 2020. the risks surrounding the euro area growth outlook remain tilted to the downside. these risks mainly pertain to the prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets. according to eurostat ’ s flash estimate, euro area annual hicp inflation was 1. 0 % in august 2019, unchanged from july. lower energy inflation was offset by higher food inflation, while the rate of hicp inflation excluding food and energy was unchanged. on the basis of current futures prices for oil, headline inflation is likely to decline before rising again towards the end of the year. measures of underlying inflation remained generally muted and indicators of inflation expectations stand at low levels. while labour cost pressures strengthened and broadened amid high levels of capacity utilisation and tightening labour markets, their pass - through to inflation is taking longer than previously anticipated. over the medium term underlying inflation is expected to increase, supported by our monetary policy measures, the ongoing economic expansion and robust wage growth. this assessment is also broadly reflected in the september 2019 ecb staff macroeconomic projections for the euro area, which foresee annual hicp inflation at 1. 2 % in 2019, 1. 0 % in 2020 and 1. 5 % in 2021. compared with the june 2019 staff macroeconomic projections, the outlook for hicp inflation has been revised down over the whole projection horizon, reflecting lower energy prices and the weaker growth environment. turning to the monetary analysis, broad money ( m3 ) growth increased to 5. 2 % in july 2019, after 4. 5 % in june. sustained rates of broad money growth reflect ongoing bank credit creation for the private sector and low opportunity costs of holding m3. the narrow monetary aggregate m1 continues to be the main contributor to broad money growth on the components side. 2 / 3 bis central bankers'speeches the annual growth rate of loans to non - financial corporations remained unchanged at