Looking forward, economic activity should benefit from a gradual improvement in domestic demand, supported by the ECB’s accommodative monetary policy stance and strengthening external demand for euro area exports. However, unemployment in the euro area remains far too high, and the recovery will need to be firmly established. Annual euro area inflation declined to 1.3% in August 2013, down from 1.6% in July.
Underlying price pressures are expected to remain subdued, reflecting the broad-based weakness in aggregate demand and the modest pace of the recovery. Medium to long-term inflation expectations continue to be firmly anchored in line with price stability. The risks to the outlook for price developments are expected to be still broadly balanced over the medium term. Monetary and, in particular, credit dynamics remain subdued.