Accordingly, measured in real terms, it will amount to 26.9 percent of GDP in 2012, up from 26.2 percent of GDP in 2011. The effects of the worsened external scenario will be visible mainly in inventories. The baseline scenario estimates that in 2012 inventories as a percentage of GDP will vary less than they did in 2011, reflecting the inventory adjustments that enterprises will be carrying out because of the uncertainty coming from abroad. Consumption and investment will also be partly affected by the worsened global conditions, but the main determinants will be the aforesaid factors. All these elements combined depict a scenario for 2012 where domestic demand grows less than in 2011, although still faster than output. The baseline scenario foresees the current account of the balance of payments posting a deficit of 3.1 percent of GDP this year, that is, bigger than in 2011, but somewhat smaller than forecast in March. Despite the lower price assumed for copper and the weak domestic demand, the expected adjustment in domestic demand plus the drop in the oil price are behind this smaller deficit (table 3). The Board estimates that y-o-y CPI and core inflation will continue to hover around the target until the end of the projection horizon, this time the second quarter of 2014 (figure 3). This trajectory assumes that wages will be adjusted to reflect productivity and the inflation target.
Not just because that is how one safeguards the purchasing power of our fellow citizens, in particular of the most vulnerable amongst them, who have the least protection against price increases. But also because price stability allows us to create the conditions for sustainable growth and dynamic job creation, and to combat unemployment effectively. In today’s world, however, financial stability, for which price stability is a prerequisite, is of great value. We must unremittingly endeavour to create conditions for the international economy that minimise misalignments in asset prices, excessive volatility, purely speculative phenomena and dangerous herd behaviour. This is the underlying message in central banks’ repeated calls for prudence and caution. Nothing is more conducive to economic euphoria than ample monetary liquidity, but the after-effects can be very painful, with the formation of speculative bubbles, sharp swings in asset prices, and the herd behaviour of huge capital flows. A monetary policy based on stability is the indispensable complement to the remarkable efforts undertaken these past years to improve the international financial architecture. *  *  3  *  BIS Review 115/2000  The economy of the euro area has the favourable monetary, financial and competitive conditions necessary to contribute to the pursuit of growth that is sustainable because non-inflationary. But as the Monetary Policy Council has indicated these past years, monetary policy needs to be relayed by the other main components of economic policy. Four conditions would appear necessary to preserve and reinforce the complete success of the single currency.