to be firmly anchored in line with price stability. this assessment is also reflected in the september 2013 ecb staff macroeconomic projections for the euro area, which foresee annual hicp inflation at 1. 5 % in 2013 and 1. 3 % in 2014. in comparison with the june 2013 eurosystem staff macroeconomic projections, the projection for inflation for 2013 has been revised upwards by 0. 1 percentage point, while the projection for 2014 remains unchanged. the risks to the outlook for price developments are expected to be still broadly balanced over the medium term, with upside risks relating in particular to higher commodity prices as well as stronger than expected increases in administered prices and indirect taxes, and downside risks stemming from weaker than expected economic activity. turning to the monetary analysis, data for july confirm that underlying broad money ( m3 ) and, in particular, credit growth remained subdued. annual growth in m3 decreased further in july to 2. 2 %, from 2. 4 % in june. annual growth in m1 remained strong but decreased to 7. 1 % in july, from 7. 5 % in june. m3 growth continued to be mainly supported by net capital inflows into the euro area, while the annual rate of change of loans to the private sector weakened further. the annual growth rate of loans to households ( adjusted for loan sales and securitisation ) remained at 0. 3 % in july, broadly unchanged since the turn of the year. the annual rate of change of loans to non - financial corporations ( adjusted for loan sales and securitisation ) was – 2. 8 % in july, compared with – 2. 3 % in june. weak loan dynamics continue to reflect primarily the current stage of the business cycle, heightened credit risk and the ongoing adjustment of financial and non - financial sector balance sheets. since the summer of 2012 substantial progress has been made in improving the funding situation of banks and, in particular, in strengthening the domestic deposit base in a number of stressed countries. in order to ensure an adequate transmission of monetary policy to the financing conditions in euro area countries, it is essential that the fragmentation of euro area credit markets declines further and that the resilience of banks is strengthened where needed. further decisive steps to establish a banking union will help to accomplish this objective. to sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. a cross - check with the signals from the monetary analysis confirms this picture. in order to

. 3 % in the second quarter of 2013. this increase is partly explained by transitory effects related to weather conditions in the first half of this year. since then, survey - based confidence indicators up to august have improved further from low levels, overall confirming our previous expectations of a gradual recovery in economic activity. looking ahead to the remainder of the year and to 2014, in line with our baseline scenario, output is expected to recover at a slow pace, in particular owing to a gradual improvement in domestic demand supported by the accommodative monetary policy stance. euro area economic activity should, in addition, benefit from a gradual strengthening of external demand for exports. furthermore, the overall improvements in financial markets seen since last summer appear to be gradually working their way through to the real economy, as should the progress made in fiscal consolidation. in addition, real incomes have benefited recently from generally lower inflation. this being said, unemployment in the euro area remains high, and the necessary balance sheet adjustments in the public and private sectors will continue to weigh on economic activity. this assessment is also reflected in the september 2013 ecb staff macroeconomic projections for the euro area, which foresee annual real gdp declining by 0. 4 % in 2013 and increasing by 1. 0 % in 2014. compared with the june 2013 eurosystem staff macroeconomic projections, the projection for 2013 has been revised upwards by 0. 2 percentage point, bis central bankers ’ speeches largely reflecting incoming data. for 2014 there has been a downward revision of 0. 1 percentage point. the risks surrounding the economic outlook for the euro area continue to be on the downside. recent developments in global money and financial market conditions and related uncertainties may have the potential to negatively affect economic conditions. other downside risks include higher commodity prices in the context of renewed geopolitical tensions, weaker than expected global demand and slow or insufficient implementation of structural reforms in euro area countries. according to eurostat ’ s flash estimate, as expected, euro area annual hicp inflation was 1. 3 % in august 2013, down from 1. 6 % in june and july. on the basis of current assumptions for energy and exchange rate developments, annual inflation rates are expected to remain low in the coming months, owing in particular to energy price developments. taking the appropriate medium - term perspective, underlying price pressures are expected to remain subdued, reflecting the broad - based weakness in aggregate demand and the modest pace of the recovery. medium to long - term inflation expectations continue