and nonenergy commodity prices. furthermore, increases in indirect taxes and administered prices may be greater than currently expected, owing to the need for fiscal consolidation in the coming years, and price pressures in the production chain could rise further. on the downside, risks relate mainly to the impact on inflation of potentially lower growth, given the prevailing uncertainties. turning to the monetary analysis, the annual growth rate of m3 increased to 1. 9 % in november 2010, after 0. 9 % in october. this strong increase is in part related to base effects and volatile factors. the annual growth rate of loans to the private sector also increased, rising to 2. 0 % in november from 1. 5 % in october. looking beyond the special factors that operated in november, broad money and loan growth is still low, corroborating the assessment that the underlying pace of monetary expansion is moderate and that inflationary pressures over the medium term should remain contained. the interest rate constellation continued to exert a significant impact on the growth of monetary aggregates. looking at m3 components, the interest rates paid on short - term time deposits remained higher than those paid on overnight deposits. as a result, annual m1 growth continued to moderate, standing at 4. 6 % in november 2010, while the annual growth rate of other short - term deposits continued to become less negative. at the same time, the yield curve has lately become steeper again, implying that the attractiveness of short - term deposits included in m3 has declined somewhat compared with more highly remunerated longer - term assets outside m3. the annual growth rate of bank loans to the private sector continued to increase in november, partly owing to special factors. at the sectoral level, this strengthening increasingly reflects the upward movement in the growth of loans to non - financial corporations, which stood at – 0. 1 % in november, after – 0. 5 % in october, thereby further confirming that a turning point was reached in the course of 2010. the growth of loans to households remained stronger, at 2. 7 % in november after 2. 9 % in october, but the latest data point to some signs of a levelling - off. over the past few months banks have expanded the provision of credit to the private sector in an environment in which the overall size of their balance sheets has remained broadly stable. the challenge remains to expand the availability of such credit when demand picks up further. to address this challenge, where necessary, it is essential for banks to

real gdp in the third quarter of 2010, recent statistical releases and survey - based evidence confirm that the positive underlying momentum of economic activity in the euro area remained in place towards the end of 2010. looking ahead at 2011, euro area exports should benefit from a continued recovery in the world economy. at the same time, and particularly taking into account the relatively high level of business confidence in the euro area, private sector domestic demand should increasingly contribute to growth, supported by the accommodative monetary policy stance and the measures adopted to restore the functioning of the financial system. however, the recovery in activity is expected to be dampened by the process of balance sheet adjustment in various sectors. in the governing council ’ s assessment, the risks to this economic outlook are still slightly tilted to the downside, with uncertainty remaining elevated. on the one hand, global trade may continue to grow more rapidly than expected, thereby supporting euro area exports. moreover, strong business confidence could provide more support to domestic economic activity in the euro area than is currently expected. on the other hand, downside risks relate to the tensions in some segments of the financial markets and their potential spillover to the euro area real economy. further downside risks relate to renewed increases in oil and other bis central bankers ’ speeches commodity prices, protectionist pressures and the possibility of a disorderly correction of global imbalances. with regard to price developments, euro area annual hicp inflation was 2. 2 % in december, according to eurostat ’ s flash estimate, after 1. 9 % in november. this was somewhat higher than expected and largely reflects higher energy prices. looking ahead to the next few months, inflation rates could temporarily increase further. they are likely to stay slightly above 2 %, largely owing to commodity price developments, before moderating again towards the end of the year. overall, we see evidence of short - term upward pressure on overall inflation, stemming largely from global commodity prices. while this has not so far affected our assessment that price developments will remain in line with price stability over the policyrelevant horizon, very close monitoring of price developments is warranted. inflation expectations over the medium to longer term continue to be firmly anchored in line with the governing council ’ s aim of keeping inflation rates below, but close to, 2 % over the medium term. risks to the medium - term outlook for price developments are still broadly balanced but could move to the upside. upside risks relate, in particular, to developments in energy