While concerns over the SARS virus have faded, there are risks relating in particular to the accumulation of macroeconomic imbalances outside the euro area and to the extent of the adjustment still needed in the euro area corporate sector to enhance productivity and profitability. Turning to price developments, the outlook over the medium term remains favourable.
For the remainder of this year, annual HICP inflation rates are expected to fluctuate around the current level of 2%, the rate recently estimated by Eurostat for June. In early 2004 a significant base effect related to energy prices should lead to a marked fall in annual HICP inflation rates, assuming broadly unchanged oil prices and exchange rates.