about the outlook? according to the bank ’ s february forecast, output growth is expected to measure 2½ % in 2012 and roughly the same in the following two years. if this forecast materialises, unemployment will decline gradually over the period, to about 5 % in 2014, by which time the slack in the economy is expected to have disappeared. an underlying current account surplus is expected throughout the forecast horizon. according to the forecast, inflation will subside over the course of 2012, approaching the target in 2013 and aligning with it in 2014. these projections are dependent on a number of factors, however, specifically the exchange rate, which is currently below the levels assumed in the forecast. bis central bankers ’ speeches as so often before, the economic outlook is uncertain, not least because of the global situation. the most recent indicators of private consumption and economic activity in the first quarter are broadly in line with the forecast, and perhaps a bit better. on the other hand, the short - term inflation outlook has deteriorated, and it could take a longer time than previously expected to bring inflation back to target unless the krona appreciates in coming months. according to the forecast, business investment as a share of gdp will be below the historical average throughout the forecast horizon, but the most recent developments, which i mentioned a moment ago, and the process of channelling offshore kronur towards investment could change that somewhat. the outlook for output growth and employment would improve even more, however, if business investment proved stronger. the global economic outlook was very bleak towards the end of 2011, particularly in the euro area. the picture has changed, however, in the first months of 2012. international measures of risk aversion have declined more or less steadily since the winter began. risk premia on debt - ridden euro area countries have fallen since the european central bank offered the banks three - year loans at low interest rates, action has been taken to address the debt problems facing individual countries, and moves have been made to improve the ground rules for the future. this does not mean that the flaws in the design of the eurozone have now been permanently fixed. nonetheless, there are indications that the contraction in the euro area is easing, and other parts of the world are doing better than expected. in essence, the global economy is continuing to grow, and growth could begin anew in the euro area in the second half of this year. but the outlook is uncertain, and the global economic situation is fragile. in

##ers, irrespective of the system. in this sense there is no fundamental difference between pay - as - you - go systems and funded systems. in a small, open economy, however, the design of the pension system can affect this burden in at least four ways : first, through its effects on the labour participation rates of the elderly ; second, through its effects on the size of the capital stock and thus on productivity of labour ; third, through accumulation of foreign assets that constitute a claim on the output of those economically active in other countries ; and fourth, through contributing to financial sector development, which in turn might result in more efficient allocation of capital. although we see some of these favourable effects rather clearly in the icelandic case, the jury is still out on some of the others. negative incentives for labour participation of the elderly are much less in evidence than in many other countries, as the retirement age is relatively high and the system is mostly neutral vis - a - vis early retirement. however, the effects on the growth rate through higher savings and investment rates have so far been difficult to ascertain, and the national savings rate was unusually low in the build - up to the financial crisis. as regards foreign assets, however, the picture is clear, as the pension funds have indeed built up a very significant stock of these through the years, amounting to 26 % of their total assets at the end of 2007. they amounted to 7 % of total foreign assets and 29 % of foreign securities owned by icelandic residents as recorded in iceland ’ s international investment position. in addition to shifting part of the future pension burden abroad, these assets proved to be important reserves when iceland faced a sudden stop of capital inflows during the financial crisis. the clearest effects of the accumulation of the pension funds have been on financial market developments, where the funds contributed very significantly to the growth of these markets. at some points, there were even concerns that the funds were becoming too predominant. thus their share of marketable bonds was almost 40 % at the end of 2002. for a while, the overgrowth of the icelandic banks laid any such concerns to rest, but when the dust has settled after their collapse, these concerns might come back. however, at the moment, with capital controls having temporarily stopped further foreign investment by the pension funds, they play an important role in the heretofore relatively easy domestic financing of the large fiscal deficit amounting to 13. 5 % of gdp last year and