analysis. after a period of sharp decline, euro area economic activity has been expanding since mid2009. according to eurostat ’ s first estimate, euro area real gdp increased, on a quarterly basis, by 0. 2 % in the first quarter of 2010. while adverse weather conditions, in particular, dampened growth in the early part of the year, the latest economic indicators suggest that a rebound took place during the spring. looking ahead, the governing council expects real gdp to grow at a moderate and still uneven pace over time and across economies and sectors of the euro area. the ongoing recovery at the global level and its impact on the demand for euro area exports, together with the accommodative monetary policy stance and the measures adopted to restore the functioning of the financial system, should provide support to the euro area economy. however, the recovery of activity is expected to be dampened by the process of balance sheet adjustment in various sectors and weak labour market prospects. this assessment is also reflected in the june 2010 eurosystem staff macroeconomic projections for the euro area, according to which annual real gdp growth will range between 0. 7 % and 1. 3 % in 2010 and between 0. 2 % and 2. 2 % in 2011. compared with the march 2010 ecb staff macroeconomic projections, the range for real gdp growth this year has been revised slightly upwards, owing to the positive impact of stronger activity worldwide in the short run, while the range has been revised somewhat downwards for 2011, reflecting mainly domestic demand prospects. the june 2010 eurosystem staff projections are broadly in line with forecasts by international organisations. in the governing council ’ s assessment, the risks to the economic outlook are broadly balanced, in an environment of unusually high uncertainty. on the upside, the global economy and foreign trade may recover more strongly than projected, thereby further supporting euro area exports. on the downside, concerns remain relating to renewed tensions in some financial market segments and related confidence effects. in addition, a stronger or more protracted than expected negative feedback loop between the real economy and the financial sector, renewed increases in oil and other commodity prices, and protectionist pressures, as well as the possibility of a disorderly correction of global imbalances, may weigh on the downside. with regard to price developments, euro area annual hicp inflation was 1. 6 % in may 2010, according to eurostat ’ s flash estimate, after 1. 5 % in april. the rise in inflation

to be affected over the medium term by the process of ongoing balance sheet adjustment in the financial and the non - financial sector, both inside and outside the euro area. in the view of the governing council, the risks to this outlook remain broadly balanced. on the upside, there may be stronger than anticipated effects stemming from the extensive macroeconomic stimulus being provided and from other policy measures taken. confidence may also improve more quickly, the labour market deterioration may be less marked than previously expected and foreign demand may prove to be stronger than projected. on the downside, concerns remain relating to a stronger or more protracted negative feedback loop between the real economy and the financial sector, renewed increases in oil and other commodity prices, the intensification of protectionist pressures and the possibility of a disorderly correction of global imbalances. with regard to price developments, annual hicp inflation stood at - 0. 1 % in october, according to eurostat ’ s flash estimate, compared with - 0. 3 % in september. the current negative inflation rates are in line with previous expectations and reflect mainly movements in global commodity prices over the last year. in the coming months, annual inflation rates are projected to turn positive again, also relating to base effects. thereafter, over the policy - relevant horizon, inflation is expected to remain positive, with overall price and cost developments staying subdued reflecting ongoing sluggish demand in the euro area and elsewhere. in this context, it is important to re - emphasise that inflation expectations over the medium to longer term remain firmly anchored in line with the governing council ’ s aim of keeping inflation rates below, but close to, 2 % over the medium term. risks to this outlook remain broadly balanced. they relate, in particular, to the outlook for economic activity and to the evolution of commodity prices. furthermore, increases in indirect taxation and administered prices may be stronger than currently expected owing to the need for fiscal consolidation in the coming years. turning to the monetary analysis, the annual growth rates of m3 and loans to the private sector declined further in september, to 1. 8 % and - 0. 3 % respectively. these concurrent declines support the assessment of a moderate underlying pace of monetary expansion and low inflationary pressures over the medium term. in the next few months, the annual growth rates of monetary aggregates will most likely be affected downwards by base effects that are associated with the intensification of the financial turmoil one year ago. more fundamentally, however, the growth of m1 and m3