and stay near that figure until the end of the projection horizon, this time the second quarter of 2017 ( figure 7 ). this trajectory considers that the transmission to prices of the peso depreciation accumulated in the past year will be in line with its historical patterns ; that real wages will be adjusted as a function of productivity ; and that output gaps will remain over the projection horizon. for the rer, the methodological assumption used is that, the same as now, it will fluctuate in the upper part of the range believed to be consistent with its long - term fundamentals. as for the mpr, the working assumption is that the gradual withdrawal of the monetary impulse will be similar to what is suggested by surveys over a one - year horizon, meaning that monetary policy should start normalizing by the turn of next year ( figure 8 ). the baseline scenario reflects those events that are believed to be the most likely to occur with the information at hand at the closing of this report. there are risks, however, which, if materialized, may reshape the macroeconomic outlook and, therefore, may alter the course of monetary policy. abroad, the main sources of risk remain, only more moderate. the possibility of specific events generating episodes of high volatility in global financial markets persists, affecting funding costs, the exchange rate and the short - term inflation outlook. on the one hand, any surprises regarding the timing or the pace at which the fed will increase its benchmark rate can cause fluctuations in asset prices. on the other, there remains the risk of a default in greece having an impact on global financial markets and gdp growth in the eurozone. while these are still significant risks, the ability of the larger bis central bankers ’ speeches central banks to handle these situations has improved, reducing to some extent the intensity of the negative impact of such events. this is not to say that there are no associated risks or that their persistence for so long would have lesser effects. a positive note is the more consolidated growth in the eurozone, which has helped to configure a more balanced global economic scenario. in the emerging economies, there are still significant risks. while the risk of commodity prices dropping further seems to have eased, latin american economies have been weaker for longer than expected. this has occurred in a context where the high fiscal and current account deficits persist in many economies, making the necessary adjustments expensive and difficult to implement. the risk of slower growth in china and

policy report assumes that it will hover around 4 % for some months. after the publication of the previous report, private inflation expectations for this year increased in line with that report and have remained at a higher level since then. at one to two years ’ term, expectations remain at or around 3 %, which is the target set by the central bank ( figure 1 ). in the first quarter, domestic output and demand grew slightly more in annual terms than was expected in march. this was visible in private and public consumption, and in investment in construction and other works, with the resulting increase in growth in construction, trade and some services. however, march figures and incoming indicators suggest that the recovery of bis central bankers ’ speeches growth in the remainder of the year will be somewhat slower than expected. this is reflected by several indicators, such as retail sales, imports of consumer goods and business and consumer expectations. particularly worrisome is the possibility of consumer and business confidence remaining in clearly pessimistic territory, a situation that, if not reversed, will hinder the recovery of growth in the second half of the year ( figure 3 ). the evolution of credit also reflects weak private spending. annual growth of consumer and commercial loans is still bounded, despite the low interest rates. job creation in the private sector has also been in line with the economic slowdown. hiring in the most cycle - sensitive sectors, such as manufacturing and construction, post negative y - oy rates of variation, which however have moderated in recent months. nevertheless, the stronger increase in employment in agriculture and services, especially some linked to the public sector, has led total employment to grow by about 1 % annually. the unemployment rate remains low, because the slower employment growth is matched by also slower growth in the labor force ( figure 4 ). nominal wages continue to grow strongly, slightly more than 7 percent. the empirical evidence suggests that this owes mainly to the indexation to higher past inflation. although this phenomenon is not as intense as it was in past decades, it is still significant. there is still the risk, however, that if wages remain high, the convergence of inflation may take longer. another risk is that the evolution of wages may be reflecting a narrowing of output gaps with respect to the baseline scenario and, therefore, increased inflationary pressures. world economic data have shown lower growth in the us and a strengthening of the more positive outlook in the eurozone. although the worsened us data for the first quarter are