were before august 2007 ( figure 4 ). the external borrowing conditions for chile have also improved. premia charged to chilean banks above external reference rates have dropped ( figure 5 ). the dispersion of these premia is greater than before the crisis, which reveals more discrimination by the suppliers of credit and gives the right signals to potential borrowers by rewarding those with a stronger financial position. new external counterparties have also been observed in these operations. other constraints remain, however, such as shorter terms for the loans. finally, some chilean firms have placed their bonds in international markets after shunning these opportunities given the tight conditions by late 2008. global economic activity has taken a path to recovery that is, generally, in line with projections in september ’ s monetary policy report. third - quarter output data show an upward trend, even exceeding expectations, while consensus forecasts for global growth show a slightly stronger recovery than foreseen earlier, 4 % on average for 2010 – 2011. however, the board estimates that the risks of a weaker economy are still latent ( figure 6 ). in chile, domestic demand continues to reflect substantial inventory depletion and, to a lesser extent, a drop in gross fixed capital formation, particularly the machinery & equipment component ( figure 7 ). inventory depletion has exceeded september projections and those of other economies, shaving - off four percentage points of domestic demand in the last year. more recently, some indicators suggest that the inventory cycle is entering a new phase, where part of the depletion could respond to sales increasing faster than production ( figure 8 ). the end of the drop in inventories has a positive effect on gdp by itself, but the size and timing of its contribution to growth is still uncertain. this will depend on the level that firms consider adequate to face a cyclical recovery. it is very likely that such level will be smaller than it was before the global crisis. the adjustment of gross fixed capital formation has been similar to that of asian economies, with quarterly drops of around 10 % between end - of 2008 and beginning - of 2009 ( figure 9 ). weak investment is reflected in sluggish imports of capital goods, which are yet to show a rebound. investments in engineering and construction works have improved. although a fall is expected for this year, information from the capital goods survey shows a new increase in investment projects in the period 2009 – 2012, with some of them being pushed off from this year to the next one

has appreciated since september, with direct consequences on projected inflation. the board reiterates that it closely monitors the implications of the rer level on inflation and compliance with its monetary policy objective. in any case, the rer is within the range considered to be consistent with its long - term fundamentals. the materialization of any of these risk scenarios will have direct effects on domestic growth and inflation scenarios foreseen by the board. after consideration of the aforesaid elements, the board believes that the balance of risks for inflation and growth is unbiased. as pointed in the financial stability report, these risks are also relevant for the chilean economy ’ s financial stability. therefore, banks and other financial intermediaries should consider these threats in their management and planning for 2010, assessing the adequacy of their capital base, prudently managing their liquidity in pesos and other currencies, and actively diversifying by counterparties and credit sources. the board will continue evaluating the probabilities of these risks and their consequences on domestic inflationary and financial stability prospects. conclusions i wish to wrap this presentation with some brief concluding remarks. as i said at the beginning, the last eighteen months have brought events that will be forever recorded in world history. chile suffered the consequences of the financial earthquake of developed markets on confidence around the world. economic activity dropped not only sharply but also with unprecedented speed. the same happened with inflation, which was in its long - time peak in october 2008 and is now in its lowest for decades. activity already began to pick up in the third quarter. although the y - o - y variation of the imacec remains in negative territory, in four of the last five months it posted a monthly increase. furthermore, as suggested by these projections and private expectations, in the fourth quarter the gdp will post a positive annual growth rate. annual inflation, in turn, is expected to begin rising and become positive during the first half of 2010. our financial system has been able to weather the external turmoil and the central bank has taken actions to avoid inconveniences in the provision of liquidity and implemented a highly expansionary monetary policy, not just reducing the policy rate to its lowest possible. however many risks are still there and we must be extremely careful in our decisions. the economy is beginning a recovery process that is yet to be well grounded. output gaps are significant and will close gradually ; probably taking more than the next two years. inflationary pressures