rates. euro area exports continue to profit from robust and broad - based growth in the world economy. domestic demand in the euro area is expected to maintain its relatively strong momentum, as employment growth continues to strengthen, supporting real disposable income. investment should remain dynamic, benefiting from financing conditions which remain favourable. this positive outlook is reflected in the latest macroeconomic projections of eurosystem staff who foresee average annual real gdp growth in a range between 2. 3 % and 2. 9 % in 2007 and between 1. 8 % and 2. 8 % in 2008. in the governing council ’ s view, the risks to this favourable medium - term outlook for growth are broadly balanced over the shorter term, while the balance of risks remain on the downside at medium to longer horizons. these relate mainly to external factors, notably potential protectionist pressures, possible further oil price rises, global imbalances and potential shifts in financial market sentiment. turning to price developments, annual hicp inflation was, according to eurostat ’ s flash estimate, 1. 9 % in may, unchanged from april but somewhat higher than expected a few months ago, in particular owing to increasing oil prices over recent months. looking ahead, the short - term profile of annual inflation rates continues to be determined largely by current and past energy price developments, as last year ’ s volatility in energy prices leads to significant base effects. against this background, the eurosystem staff projections foresee average annual hicp inflation of between 1. 8 % and 2. 2 % in 2007, slightly revised upwards compared with the march projections, and of between 1. 4 % and 2. 6 % in 2008. in the governing council ’ s view, risks to the outlook for price stability remain on the upside over the medium term. notably, these risks are on the domestic side. they relate mainly to emerging capacity constraints and, closely related, stronger than expected wage dynamics, which would pose significant upside risks to price stability. in addition, pricing power in market segments with low competition may increase in such an environment. it is therefore crucial that all parties concerned meet their responsibilities. wage agreements in particular should be sufficiently differentiated to take adequately into account price competitiveness positions, the still high level of unemployment in many economies and sector - specific productivity developments. cross - checking with the monetary analysis confirms the prevalence of upside risks to price stability at medium to longer horizons, given the continued strong underlying rate of monetary expansion in a context of

needs more reform progress ; but the situation is more differentiated and more promising than the black - and - white, rather gloomy picture often portrayed. the structural impediments to the euro area ’ s growth must be addressed by implementing appropriate structural measures. there are no alternative solutions and no “ quick fixes ”. the euro underlines the validity of this proposition as well as the need for systematic and determined efforts towards implementing the necessary reforms. as the euro area economy becomes more productive, flexible and competitive, its growth performance will improve, benefiting from both an enhanced capacity to produce as well as increased confidence that can boost investment and consumption. thank you for your attention.