negative productivity growth, high wage growth kept unit labour cost growth elevated, though profit margins are absorbing part of their impact on inflation. the disinflation process is expected to continue, especially once a recovery in productivity growth starts reinforcing downward pressure on labour cost growth. inflation is expected to decline to 2. 3 % in 2024 and reach 2. 0 % around mid - 2025. risks to the inflation outlook are two - sided. upside risks include heightened geopolitical tensions, as well as higher wage growth and more resilient profit margins than anticipated. downside risks include monetary policy dampening demand more than expected, and an unexpected deterioration in the economic environment in the rest of the world. financial stability, euro area banking sector and non - bank financial intermediation 2 / 4 bis - central bankers'speeches the euro area financial system has remained strong, aided by declining inflation. nonfinancial corporations and households have shown resilience and are poised to gain from a forthcoming easing of financing conditions. the outlook remains fragile, however, marked by elevated vulnerabilities stemming from weakening growth prospects, still tight financial conditions and the materialisation of geopolitical risks. as higher financing costs, a move towards hybrid working practices as well as environmental, social and governance requirements are likely to continue posing cyclical and structural challenges, we are closely monitoring developments in euro area real estate markets. euro area banking sector profitability reached its highest level since the global financial crisis but is likely to have peaked, as net interest margins started to decline in the last quarter of 2023. banks are maintaining sizeable liquidity and capital buffers despite considerable reductions in central bank funding and substantial shareholder payouts. specifically, significant banks reported an average liquidity coverage ratio of around 164 % and an aggregate common equity tier 1 ratio of 15. 7 % at the end of 2023. nonperforming loan ratios remain close to historically low levels, although mild signs of deterioration are visible in loans to small and medium - sized enterprises and to the commercial real estate sector. banks'exposures to commercial real estate are contained, at around 5 % of their total assets. the euro area banking sector has proven resilient to tensions in other parts of the world so far, and confidence in it has been supported by strong rules and supervision. looking ahead, it is crucial that all jurisdictions finalise their implementation of basel iii. risks in the non - bank financial intermediation ( nbf

##i ) sector remain elevated, despite some portfolio rebalancing towards higher - quality assets. the sector is vulnerable to asset price corrections, macroeconomic uncertainty and market volatility. these factors could contribute to rising outflows from open - ended investment funds, which can exhibit significant mismatches between asset liquidity and redemption terms, or to potential margin calls for investment funds, insurance companies and pension funds. additionally, parts of the nbfi sector also display significant financial and synthetic leverage, which can propagate liquidity shocks to the wider financial system and amplify stress. recent market episodes including the turmoil in march 2020, commodity market tension in 2022 and uk government bond market stress in september 2022 underline the need for international coordination to strengthen the nbfi policy framework, also from a macroprudential perspective. international cooperation we welcome the imf's continued support for ukraine, in particular its recent approval of the third review of the extended fund facility arrangement, marked by ukraine's strong performance under very challenging conditions. timely disbursement of external support by all donors will be critical for the future of ukraine's programme. we also welcome the conclusion of the 16th general review of quotas in december 2023, which strengthens the quota - based nature of the imf at the centre of the global financial safety net. the priority now is to implement the review by mid - november 2024. we look forward to the upcoming evaluation by the fund's independent evaluation office on the evolving application of the imf's mandate. focusing on the imf's mandate and its cooperation with the world bank will be important, also in their implementation of the resilience and stability trust. 3 / 4 bis - central bankers'speeches geopolitical tensions are increasingly giving rise to economic and financial fragmentation and pose a significant risk to global prosperity. a world divided along geopolitical lines would be more prone to adverse supply shocks and reduced trade, possibly leading to higher inflation and lower welfare. we also see a greater deployment of trade - restrictive measures targeted at sectors considered strategically important for technological progress and the green transition. however, legitimate concerns about security and supply chain resilience should not lead to a spiral of protectionism. if we are to preserve the unparalleled achievements in global growth and poverty reduction made in the past decades, multilateral cooperation is more important than ever. the cop28 global stocktake has clearly shown that the world