These measures, in combination with sizeable macroeconomic policy stimuli, have set in motion a mutually-reinforcing process between financial system conditions and real economic performance, fostering improving economic prospects and a fading of systemic risk. One important reason for the lowered systemic risk has been an abatement of tail risk, which has been primarily due to the downside-protection by governments of financial institutions’ balance sheets. A recovery of risk appetite, underpinned by the reduced systemic risk, has contributed to the remarkable turnaround in the financial markets since March 2009. The improved financial conditions and the steeper yield curves have sufficiently strengthened the profitability of many financial institutions, especially the large ones, to such an extent that they have been able to absorb considerable write-downs on securities and loans, while still, on average, reporting material improvements in profitability over three consecutive quarters. In my presentation, I will highlight the main risks identified and assessed in the Review and the associated financial stability challenges. I will start with certain sources of risk stemming from the global macro-financial environment. II. Risks in the global macro-financial environment  Over the past six months, the adjustment of global current account imbalances has continued, driven by the global economic slowdown and the overall fall in commodity prices, especially energy, from the peaks of mid-2008. The current account deficit of the US is now projected to fall to 2.6% of GDP in 2009, which is almost 2.3 percentage points lower than in the previous year.
They follow current changes in prices, primarily petrol and food prices, and ruble exchange rate fluctuations. The third important factor we took into account is consumer demand. Lending underpins consumption but slowing wage growth constrains a rise in demand. Consumption growth slowed down after a short-term acceleration in November, which was likely associated with preemptive purchases of non-food goods in the run-up to the VAT hike. We can see it from retail sales figures. The rise in consumer activity does not exert pressure on prices. This, among other things, is an important reason of a moderate VAT pass-through to prices. The fourth factor is external conditions. A number of changes which only started to emerge in December, intensified at the beginning of this year. The US Fed and the European Central Bank eased their rhetoric as regards the monetary policy outlook. Improvements were seen in markets’ expectations regarding the negotiations of international trade restrictions. These factors supported emerging market currencies and reduced their risk premiums. We may say that external risks declined in this part. At the same time, geopolitical risks remain in place. Oil prices in the first quarter were higher than projected in the baseline scenario. However, risks are high that oil production will exceed consumption this year. Finally, overall monetary conditions have changed little if at all since the start of the year. Deposit rates have edged higher, while loan rates have stabilised.