preliminary flash estimate. it is set to remain weak in the near term. surveys indicate that manufacturing 1 / 4 bis - central bankers'speeches continues to contract while services activity is expanding. consumer confidence is fragile, and households have not yet drawn sufficient encouragement from rising real incomes to significantly increase their spending. nevertheless, the conditions for a recovery remain in place. while the labour market has softened over recent months it continues to be robust, with the unemployment rate staying low, at 6. 3 per cent in december. a solid job market and higher incomes should strengthen consumer confidence and allow spending to rise. more affordable credit should also boost consumption and investment over time. provided trade tensions do not escalate, exports should support the recovery as global demand rises. fiscal and structural policies should make the economy more productive, competitive and resilient. we welcome the european commission's competitiveness compass, which provides a concrete roadmap for action. it is crucial to follow up, with further concrete and ambitious structural policies, on mario draghi's proposals for enhancing european competitiveness and on enrico letta's proposals for empowering the single market. governments should implement their commitments under the eu's economic governance framework fully and without delay. this will help bring down budget deficits and debt ratios on a sustained basis, while prioritising growth - enhancing reforms and investment. inflation annual inflation increased to 2. 4 per cent in december, up from 2. 2 per cent in november. as in the previous two months, the increase was expected and primarily reflected past sharp drops in energy prices falling out of the calculation. along with a month - on - month increase in december, this led energy prices slightly higher on an annual basis, after four consecutive declines. food price inflation edged down to 2. 6 per cent and goods inflation to 0. 5 per cent. services inflation edged up to 4. 0 per cent. most underlying inflation indicators have been developing in line with a sustained return of inflation to our medium - term target. domestic inflation, which closely tracks services inflation, has remained high, as wages and some services prices are still adjusting to the past inflation surge with a substantial delay. at the same time, recent signals point to continued moderation in wage pressures and to the buffering role of profits. we expect inflation to fluctuate around its current level in the near term. it should then settle sustainably at around the two per cent medium - term target. easing labour cost pressures and

full for the increase in private issuance activity seen in 1999, all the more so since the trend has continued at the beginning of 2000. second, the available data showed not only an increase in private issuance, but also a series of changes in the various characteristics of the newly issued debt securities. for example, the average size of new bond issues increased considerably in 1999, as the number of very large issues, of eur 1 billion or more, increased significantly. it should be recognised that this development partly reflected the increased preference of investors for deep and liquid instruments following the episode of financial turmoil in the autumn of 1998. however, another reason for this change, which was particularly notable in the euro area, was the fact that borrowers were able to take advantage of the newly created euro - denominated bond market. by virtue of its size and high degree of openness, the euro - denominated bond market is more able to absorb very large issues than the individual bond markets of the predecessor currencies of the euro. looking in more detail at the components of the increase in private euro - denominated bond issuance, it is noteworthy that issuance by non - residents, although small relative to the total, increased particularly rapidly in 1999. standing at around eur 630 billion at the end of 1999, the outstanding amount of euro - denominated debt securities issued by non - residents represented slightly less than one - tenth of the total outstanding amount of euro - denominated debt securities. however, this constituted an increase of more than 40 % compared with end - 1998. in 1999, the amount of new issues of euro - denominated debt securities by non - residents came very close to that of new dollar - denominated issues by non - residents. hence, in the course of 1999 the euro - denominated component of international bond markets played a far larger role than the predecessor currencies of the euro had hitherto. this development was in line with the predictions made by some commentators before the introduction of the euro. however, the speed of the increase in euro - denominated international bond issuance during 1999 was remarkable. in 1999 the main investors active in the euro - denominated segment of the international bond market were, as in previous years, investors located in the euro area. hence, as shown in a recent ecb working paper, although the euro became an important placement currency for international bonds virtually from the beginning, the use of