explain our assessment in greater detail, starting with the economic analysis. real gdp in the euro area rose by 0. 2 %, quarter on quarter, in the third quarter of this year. this was in line with earlier indications of a weakening in the euro area ’ s growth momentum, leading to a downward revision of the outlook for euro area real gdp growth in the most recent forecasts. the latest data and survey evidence up to november confirm this picture of a weaker growth profile in the period ahead. at the same time, the outlook for a modest economic recovery remains in place. on the one hand, domestic demand should be supported by our monetary policy measures, the ongoing improvements in financial conditions, the progress made in fiscal consolidation and structural reforms, and significantly lower energy prices supporting real disposable income. furthermore, demand for exports should benefit from the global recovery. on the other hand, the recovery is likely to continue to be dampened by high unemployment, sizeable unutilised capacity, and the necessary balance sheet adjustments in the public and private sectors. bis central bankers ’ speeches these elements are reflected in the december 2014 eurosystem staff macroeconomic projections for the euro area, which foresee annual real gdp increasing by 0. 8 % in 2014, 1. 0 % in 2015 and 1. 5 % in 2016. compared with the september 2014 ecb staff macroeconomic projections, the projections for real gdp growth have been revised substantially downwards. downward revisions were made to the projections for both domestic demand and net exports. the risks surrounding the economic outlook for the euro area are on the downside. in particular, the weak euro area growth momentum, alongside high geopolitical risks, has the potential to dampen confidence and especially private investment. in addition, insufficient progress in structural reforms in euro area countries constitutes a key downward risk to the economic outlook. according to eurostat ’ s flash estimate, euro area annual hicp inflation was 0. 3 % in november 2014, after 0. 4 % in october. compared with the previous month, this mainly reflects a stronger fall in energy price inflation and a somewhat lower annual increase in services prices. taking into account the current environment of very low rates of inflation, it will be important to assess the broader impact of recent oil price developments on mediumterm inflation trends and to avoid spillovers to inflation expectations and wage formation. against the background of recent oil price developments, it is crucial to recall that forecasts and projections are based on technical

##en economic activity, thereby adding to the forces which had already depressed the outlook for the euro area before the escalation of tensions in the middle east. as a result, we should only expect a modest rate of economic growth for 2003. however, the evolution of economic growth for the rest of this year is particularly difficult to foresee at the moment, given the exceptional degree of uncertainty arising from the military conflict. our baseline scenario continues to be one of a moderate recovery associated with diminishing uncertainty, starting in the second half of 2003. however, we will need to review the economic implications of the war as soon as a clearer picture emerges. a number of scenarios, implying widely different outcomes for economic activity, are conceivable at present. yet it would be premature to assign specific probabilities to any such exercises, which are mainly of an illustrative nature. looking at price developments, annual hicp inflation is estimated by eurostat to have been 2. 4 % in march 2003, unchanged from february. the recent drop in oil prices is not likely to be reflected in the price statistics until april. as for the outlook for price stability over the medium term, it is particularly important to clearly distinguish between short - term volatility and more fundamental factors. while oil price developments may very much influence the pattern of inflation rates over the coming months, other factors should dominate beyond the short term. the lagged effects of the appreciation of the euro exchange rate since mid - 2002 will continue to dampen upward pressure on prices, as will the modest economic growth. if the recent significant reduction in oil prices is sustained, inflation rates will in all likelihood fall below 2 % in the course of 2003 and remain in line with price stability thereafter ; evidently, this presupposes that wage moderation prevails. overall, the present policy stance is consistent with the preservation of price stability over the medium term. it maintains a monetary environment that is in itself favourable to economic growth in a situation in which other factors are having an adverse effect on economic activity. exceptional circumstances are complicating the assessment of economic trends. we will therefore continue to monitor events carefully and evaluate them in the light of our mandate. regarding fiscal policies, the stability and growth pact provides a robust and flexible framework for addressing any strains on public finances without undermining the principle of budgetary discipline. while letting, where possible, automatic stabilisers operate in reaction to changing economic circumstances, there is no reason