activity. economic activity is expected to increase in the upcoming quarters and reach roughly 0. 5 % for the entire year 2012. over the short run, increased government expenditure in the first half of the year exerts some positive contribution to domestic demand. but, euro area recession and dented economic growth of serbia ’ s other foreign trade partners will reflect negatively on demand for serbian products and the inflow of fdi in the course of this year. despite this, past and current investments in export branches of industry, primarily in the automotive industry, will lead to increased production and exports from the second half of the current year. past weakening of the dinar will also give impetus to exports growth. in view of high unemployment and modest economic growth, final consumption is expected to contract this year as well. coupled with a fall in investment demand and past weakening of the dinar, this will probably result in lower imports in 2012. with production picking up in the mostly export - oriented automotive industry, a more palpable growth of the serbian economy of 3 % could be expected in 2013. this, however, will largely hinge on the speed of the global economic recovery. growth may turn out slower than anticipated in case stricter fiscal consolidation measures are applied. in our view, however, application of stricter consolidation measures is desirable as it would contribute to macroeconomic stability, public debt sustainability, lowering of the country risk and, consequently, of the cost of borrowing, all of which would have a positive long - term impact on the economic activity in serbia. we wish to underline again that sustainability of economic growth in serbia is more important than its pace, which assumes further shifting of the sources of growth from domestic final consumption towards net exports and investments, primarily into export - oriented industries. * * * bis central bankers ’ speeches inflation has been on a steady decline throughout the last year, mostly as a result of weakening cost - push pressures on food prices, low aggregate demand and restrictive monetary policy measures applied at times of strongest inflationary pressures. the fall in year - on - year inflation was particularly pronounced in the first months of the year, as substantial price hikes from early 2011 dropped out from the calculation. inflation thus fell from 7. 0 % in december to 3. 2 % at the end of the first quarter and to 2. 7 % in april 2012, which is the lowest year - on - year inflation rate since records are available beginning in 1980. this is also slightly below the lower

2008, while the european central bank announced it would keep its main rates at current or lower levels at least through mid - 2020. this should sustain favourable financial conditions for longer than expected, as well as capital inflows to emerging markets. as monetary easing by leading central banks appeared more certain and positive macroeconomic developments at home continued, the national bank of serbia decided to lower the key policy rate in two instances, july and august, by 25 bp each, to 2. 5 %, i. e. its lowest level in the inflation targeting regime yet. thus, in conditions of subdued inflationary pressures, the national bank of serbia continued to provide additional support to economic growth and a sustainable rise in employment. as so far, monetary policy decisions will continue to be made in consideration of the effects of past monetary easing on the future inflation profile, as well as of the effects of other domestic and external factors. given that the key risks to the projection are still mostly associated with the international environment, the national bank of serbia will keep a close eye on developments in the international commodity and financial markets and assess their impact on economic movements in serbia. as before, monetary policy will be predictable and consistent in delivering low and stable inflation in the medium term. this will at the same time help maintain macroeconomic and financial stability and contribute to sustainable economic growth. owing to this, there is a constant rise in the number of domestic and foreign investors who are investing at a longer horizon, having recognised the stability and prospects of our economy. current economic trends and the results achieved thus far are a good basis for further sustainable and dynamic economic growth. this is confirmed by our latest projections and key macroeconomic developments, which will now be presented to you in detail by our colleagues from the economic research and statistics department.