activity will depend on the structure of the economy and the value added weight of the tourism and leisure activities, which are affected the most ; the scope and effectiveness of policy measures ; the success in addressing the health crisis ; and the subsequent lifting of containment measures. these forecasts are subject to considerable downside risks and uncertainties. the greatest risk is associated with the possibility of a second wave of the pandemic, which will delay the recovery. moreover, it could lead to long - lasting effects, such as widespread corporate insolvencies, higher unemployment and a slower recovery, which, in turn, are expected to have a negative impact on banks ’ balance sheets. on the upside, the development of an effective treatment / vaccine for tackling the coronavirus would have positive effects on the world economy. moreover, the adoption of the european commission ’ s proposal on the “ next generation eu ” instrument will accelerate the recovery of the european economy. 2. policy action in the euro area european and national policymakers have acted quickly and decisively with an initial round of 1 / 6 bis central bankers'speeches measures that are sharply reducing the effects of the pandemic shock. the governing council of the european central bank ( ecb ) adopted in march, april and june 2020 an even more accommodative monetary policy stance. this aims primarily at preventing the disruption of the medium - term path to price stability, averting fragmentation and ensuring a smooth transmission of monetary policy in the euro area, while at the same time supporting households, businesses and banks to absorb the shocks caused by the pandemic. in particular, the interventions aimed at ( a ) ensuring favourable liquidity conditions for the banking system, ( b ) ensuring the smooth flow of financing to the real economy and ( c ) preventing a pro - cyclical tightening of financial conditions for all sectors of the euro area economy. moreover, the supervisory board provided banks with the necessary temporary flexibility regarding capital adequacy and liquidity. the governing council of the ecb has announced that it will continue to monitor and analyse the effects of the pandemic on economic developments, the medium - term outlook for inflation and monetary policy transmission. it finally stated that it stands ready to adjust its instruments as appropriate. in addition to monetary policy interventions, there have been immediate and far - reaching initiatives and measures by national governments and european institutions, both to tackle the pandemic and to protect the economic and social fabric, as well as to

operations are intended to safeguard financial stability and ensure, through the orderly functioning of the interbank money market, that the governing council ’ s interest rate decisions are transmitted to the financial markets and the real economy. the economic outlook and policy challenges the economic outlook for the euro area is surrounded by an unusual degree of uncertainty. the financial market turmoil is likely to last for some time and its impact on the real economy is difficult to assess at this time. much depends on how far banks might tighten their lending terms in response to losses and the unwelcome transfer onto the balance sheet of offbalance sheet items. for the time being, there is little evidence that the financial market turmoil has influenced the dynamics of credit aggregates in the euro area. 1 meanwhile, the cost of funding for firms and households appears to have edged upwards, albeit only slightly, in the euro area in recent months. the latest available information, therefore, suggests that the impact of the financial market turmoil on euro area economic activity is not likely to be sizable. the sound fundamentals of the euro area economy and the absence of major macroeconomic imbalances should help cushion the effects of the financial market tensions. nevertheless, caution is warranted. the impact on some banks ’ balance sheets has been considerable and a number of financial institutions may have to strengthen their capital positions and be more cautious in their lending policies. according to the march 2008 projections of the ecb staff, real gdp in the euro area will rise in a range of 1. 3 % to 2. 1 % in 2008, representing a deceleration from 2. 6 % in 2007. meanwhile, the short - term outlook for inflation is not satisfactory. inflation reached 3. 5 % in march, reflecting mainly the rapid rise in oil and other commodity prices, and is likely to remain at elevated levels above 2 % in the coming months and moderate toward 2 % very gradually. globally, the economic expansion is loosing speed in the face of the financial crisis. outside of the euro area, growth in the advanced economies of western europe is decelerating. the u. s. economy is likely to experience a more serious slowdown, with minimal – if not negative – growth in the first two quarters of 2008, followed by a gradual recovery thereafter. the emerging and developing economies, led by china and india, have so far been less affected by financial market developments, although activity is beginning to slow in some countries. in the light of the financial market turmoil, the balance