interest rate cut can be diluted. when confronted with such a risk, monetary authorities have to take rapid and decisive action in order to exert the desired influence on final demand. this is what we have done over the past few months. in order to monitor lending conditions since the outbreak of the financial crisis, the snb has been conducting regular surveys of the 20 major swiss banks. by providing us with information on these banks ’ intentions and expectations, the survey complements the analysis of lending volumes. in the vast majority of the institutions surveyed, no lending restrictions were announced in the third quarter. only 15 % of the banks reported that their lending practice had become slightly more restrictive. data for october on lending volumes in switzerland confirm this picture. mortgage lending is growing steadily, most recently at a rate of 3. 4 %. growth in other lending remains strong, albeit advancing at a slightly slower pace. large companies have increasingly drawn down their lines of credit, owing to difficulties in sourcing financing on the capital markets. all in all, there is, at present, no reason to speak of a credit crunch. however, this favourable situation could soon worsen, as has been observed in other countries. i will now conclude this second section with a few brief remarks on movements in monetary aggregates. having declined until recently, monetary aggregates are now rising slightly. following the interest rate cuts, we expect that growth in monetary aggregates will gather pace over the coming months. given the current heavy demand for liquidity, higher money growth does not, of itself, indicate an increase in inflation risks. only if money growth were to become excessive over a longer period would this pose a threat to price stability in the medium term. inflation outlook in addition to the rapid worsening of the global economy and the financial crisis, the third factor behind our policy of successive rate cuts since october is the radical change in the inflation outlook. inflation risks have largely dissipated since our last quarterly assessment on 18 september, leaving considerable room for manoeuvre in monetary policy, which we have firmly exploited. as you know, last december inflation breached the 2 % ceiling above which the snb considers that the conditions for price stability are no longer met. the rapid rise in inflation – indeed, at the beginning of 2007, we still had zero inflation – was due to the combined effect of a virtually unbroken rise in oil prices and the healthy state of the economy. in july this year, inflation reached 3. 1 %, a level

which had also been stable for some time, rose rapidly, reaching 6. 7 % in november – a level not seen since 1994. the sudden worsening of the situation is above all due to the fall in household spending. households saw their financial situation deteriorate sharply due to the loss in value of their real estate and financial assets, while also suffering – until recently – a progressive erosion of their purchasing power through the continuous rise in fuel prices. although fuel prices have since receded, the effects of the price correction in the real estate sector – the root cause of the financial crisis – as well as the fall in stock market prices continue to be felt. in europe in the third quarter, gdp recorded a second successive fall. despite the recent depreciation of the euro, exports have been hit by the slowdown in global demand. this is especially true of germany, which is highly export - dependent. by prompting a revision of plans to expand production capacity, first in the export industry and then in the upstream production chain, the fall in exports has led to a downturn in demand for equipment investment. moreover, in some countries, for instance spain and ireland, construction activity has been affected by a significant correction in property prices. the picture is more mixed in asia. japan and some emerging economies in the region will probably not be able to escape a brief recession, but on the whole economic activity should continue to advance, albeit less strongly than previously expected. in addition, the emerging economies in latin america and eastern europe, which until now have been heavily dependent on capital inflows, could experience a marked slowdown in growth. thus, what was merely a risk scenario at our september assessment is now becoming reality. the advanced economies have more or less moved into recession simultaneously. the crisis in the financial sector has finally spread to the rest of the economy. with the decline in global demand, prices for food, raw materials and oil have fallen sharply. this is the positive flipside of the coin, since this development will boost real incomes and consumption in most countries. swiss economic outlook the swiss economy is of course affected by this worsening of the international environment. at our september assessment, we were still projecting a marked slowdown in activity, but with growth remaining positive in 2009. we are now forecasting that gdp growth will be negative, not only during the first two quarters of next year, but also on average for 2009 as a whole. with the probable exception of consumption, all demand components