a blissful state of economic, social, cultural, political and institutional equilibria. the only reasonable approach is to endeavour tirelessly and to the best of our technical ability to navigate a reality that is complex, characterised by change and prone to crises. if there is no going back, then going forward we can only go forward. navigating this reality requires us to be constantly vigilant to the risks involved, a task that requires us to understand reality and to deal with it to best of our technical competences. change brings with it challenges and opportunities, which challenges and opportunities easily morph into each other, and generate further challenges and opportunities. page | 10 of course, the financial system, like any other, cannot reduce risk to zero. we will always face inappropriate behaviour, but we are confident that malta ’ s financial system can withstand the shocks generated by such behaviour, given constant vigilance. precisely because the economy is everybody ’ s business, it is in everybody ’ s business that we do not underestimate the critical importance of the technical competences required to understand and manage the challenges and opportunities that change inevitably implies. it is an aspect of contemporary reality where words matter, where words are performative, where they have practical consequences, where – therefore – it is critical that we know what we are talking about. in this address today, my colleagues and i have highlighted some of the issues we face as we deal with change within our remit and within perspective of our main institutional objective, namely to maintain price stability within the framework of our enthusiastically committed membership of the eurosystem and our participation in the formulation and implementation of the eurosystem ’ s monetary policy. the central bank of malta ’ s mission statement, declares that amongst our institutional obligations, we must “ contribute effectively to the stability of the financial system by identifying and assessing systemic risks and imbalances, and making the appropriate policy recommendations ”, and that “ we must formulate and implement a macro - prudential policy to fulfil the tasks of the bank as the national macro - prudential authority ”. we will continue to do so with all the energy, consistency and competence required. page | 11

to, 2 % in the medium term. following very strong growth in 2017, real gdp in the euro area continued to expand during the first three quarters of this year, albeit at a slower pace, with an annual growth rate of 1. 7 % being registered in the third quarter. the latest information, while being somewhat weaker than expected, remains consistent with an ongoing economic expansion. in turn, with the economy growing at rates above potential, and with the unemployment rate declining steadily, inflation should gain momentum. indeed, the euro area inflation rate stood at 2. 2 % in october, up from 2. 1 % in september and from 1. 4 % a year earlier. that having been said, measures of underlying inflation, which strip out the contributions of volatile items such as energy and food, remain muted. the situation in international financial markets during 2018 remained very challenging. most asset classes today are in negative territory when compared to the start of the year, which is a very unusual phenomenon. over the past year, developments in financial markets have been largely dominated by several political events, while generally positive economic news seemed to matter much less. these political events ranged from trade tensions, especially between the us and china, to brexit - related developments, a slowdown in emerging market economies, most notably in argentina and turkey, and also the rise of populist movements in some european countries that have led to tensions, particularly between italy and the european commission. all this led to volatility in financial markets, with a constant turn in risk - on / risk - off sentiment, which has made it more challenging for investment strategies. as a central bank, financial market developments are of a direct interest to us as these have an impact on both the domestic banking system and the central bank itself. while such volatility in financial markets and persistence of interest rates at a relatively low level in europe have continued to exert pressure on interest income flows and potential on capital gains, and hence impinge on profitability, nevertheless domestic banks have absorbed such turbulence relatively well. for the page | 3 year ahead, the situation is likely to remain equally challenging on interest income and profitability, as signs are emerging that world economic growth, including in europe, is losing momentum. this could be also particularly challenging for the process of the normalization of the monetary policy stance in europe, which is likely to be very gradual. as you are all well aware, during 2018, the european central bank gradually scaled back the