increase in resource utilisation is already evident in some indicators. a growing proportion of firms are reporting, for example, that output is being restricted by productive factors rather than by demand. the gap between total demand and total resources for production is an important but elusive indicator of inflationary pressure. the riksbank considers that the output gap, which is an attempt to measure the degree of unutilised resources in the total economy, is 2 per cent of gdp. with the gdp forecast from the inflation report, this means that the gap will narrow by degrees and close some time during 1999, in any event towards the end of that year. in the light of the assessments of resource utilisation and other factors, in the inflation report the riksbank forecast that the annual increase in the cpi will be around 1 per cent in 1997 and around 2 per cent in both 1998 and 1999, with some upward tendency in the latter two years. this is our main scenario. like most other forecasts, however, inflation assessments are subject to uncertainty. our forecasts as a foundation for monetary policy therefore do not consist of single point estimates of future inflation. in practice we construct a number of alternative outcomes and assess their probabilities. normally there is one main scenario and two alternatives. economic activity could be stronger than we have envisaged, so that inflation is somewhat higher ; but it could also be weaker, giving lower inflation. most of the evidence suggests, however, that since the inflation report, an outcome which is appreciably weaker than the main scenario has become less likely. the forecasts for all the demand components are naturally uncertain. it is, however, particularly worth discussing the forecast for private consumption, since this component represents about one - half of total demand. some factors suggest that the growth of private consumption could become stronger than most observers count on today. the background here is that for a number years the growth of household disposable income has been held back by fiscal consolidation. after 1998, however, the direct restrictive fiscal impact on household finances is expected to diminish. but in spite of the weak or negative income trend, private consumption has already been rising for a number of years, albeit rather slowly. the reason is that, besides the effect of income on private consumption, spending by households, as well as their view of the future, is influenced by the increase in wealth. households have recently become appreciably more optimistic about the future. house prices

political attention is focused elsewhere right now. but leaving emu unfinished will leave us too fragile and vulnerable to be able to deal with future shocks. completing banking union and financial union one area that deserves particular attention is the finance sector. this year ’ s ecb annual report outlines the key challenges the euro area is facing, namely ( i ) a further increase in risk premia, a decline of financial asset prices inducing capital losses, in the context of possible emerging market stress and persistently low commodity prices ; ( ii ) weak profitability for insurers and for banks, aggravated for some banks by non - performing loans ( npls ) inherited from the crisis ; ( iii ) sovereign and corporate debt sustainability concerns ; and ( iv ) the potential for stress in the investment funds sector – and shadow banking more broadly. in the past few months, a discussion has started about the need for a new risk reduction agenda. but, before discussing such further steps, it is worth recalling that we have already made significant progress – since the beginning of the crisis – in “ de - risking ” europe ’ s financial system. we enhanced and implemented the single rulebook ; defined a common resolution framework for banks to protect european taxpayers ; established the single supervisory mechanism and single resolution mechanism, and conducted a comprehensive assessment of banks to deal with legacy issues before the start of banking union. the results are tangible. the common equity tier 1 ratio has risen, on average, from around 9 % to 13 % since 2012 for significant institutions. most european banks have managed to meet the fully - loaded capital requirements by now. while a lot has been achieved, there is no room for complacency : too many of our banks are still troubled by the ghosts of the past, legacy assets and npls. the ecb as supervisor is actively looking into this and has identified the issue as a priority. so, what is left to be done to mitigate the remaining risks and make the financial system more resilient? it is important to further improve and fine - tune what we have started. first, there is still room for improvement when it comes to establishing a truly level playing field, for example by creating a truly single rulebook. the ecb is contributing here with its work on options and discretions in the crd iv / crr framework, but you as legislators can also play an important role to complement our action. second, we should implement the missing elements of the international regulatory agenda. i will come back