quarterly outturns, it is necessary to look through the volatility in quarter - on - quarter growth rates and monthly indicators. taking this perspective, growth in the world economy, while moderating, is expected to remain relatively resilient, benefiting in particular from sustained growth in emerging economies. this should support external demand for euro area goods and services. as regards domestic developments, in a medium - term perspective the fundamentals of the euro area are sound and the euro area does not suffer from major imbalances. investment growth in the euro area has provided ongoing, though moderating, support to economic activity. moreover, employment and labour force participation have increased significantly, and unemployment rates remain low in historical terms. however, these developments, which support household disposable income and consumption, are unlikely to fully compensate the loss of purchasing power caused by higher energy and food prices. in the view of the governing council, the uncertainty surrounding this outlook for economic activity remains high, owing to, among other things, the very high and volatile levels of commodity prices and the ongoing tensions in financial markets. overall, downside risks prevail. in particular, risks stem from the dampening impact on consumption and investment of further unanticipated increases in energy and food prices. moreover, downside risks continue to relate to the potential for the financial market tensions to affect the real economy more adversely than currently anticipated. the possibility of disorderly developments owing to global imbalances also implies downside risks to the outlook for economic activity, as do concerns about the emergence of protectionist pressures. in this respect, the failure of the recent negotiations in the context of the world trade organization ’ s doha round on trade liberalisation is a major setback. with regard to price developments, annual hicp inflation has remained considerably above the level consistent with price stability since last autumn, reaching 4. 0 % in june 2008 and, according to eurostat ’ s flash estimate, 4. 1 % in july. this worrying level of inflation rates results largely from both direct and indirect effects of past sharp increases in energy and food prices at the global level. at the same time, while labour productivity growth has decelerated, there are some indications that labour cost growth has been rising in recent quarters. looking ahead, on the basis of current futures prices for commodities, the annual hicp inflation rate is likely to remain well above a level consistent with price stability for quite some time, moderating only

stability is no less important if trade is to prosper. in the importance of being earnest, cecily is instructed by her tutor, miss prism, to read her political economy. but miss prism continued, “ the chapter on the fall of the rupee you may omit. it is somewhat too sensational. even these metallic problems have their melodramatic side. ” what would poor cecily have made of the recent melodrama surrounding the values of the dollar, the euro and other paper currencies? it is clear that the aim of central banks to make monetary policy less exciting and more boring needs to be complemented by a collective effort to bring boredom to the international monetary stage. over the past year, senior policymakers from within the g - 7 are reported to have claimed that “ it ’ s awfully important that the euro zone adopt policies that will allow them to grow faster. their slow growth is hurting our growth ” ( john snow, afx news 24 / 03 / 04 ), and that “ our american friends need to put in place a determined policy to control their deficits and so that their currency does not distort commercial trade ” ( nicolas sarkozy, afx news 25 / 11 / 04 ), or indeed that china ’ s exchange rate policy “ has become a destabilizing force in the world economy, has led to major international exchange rate and trade imbalances throughout the world ” ( open letter from us senators schumer, bunning, durbin, graham, dodd and bayh to vice president richard cheney, 22 / 01 / 04 ).