As inventory de-stocking decelerated in the third quarter of 2009, the pick-up in aggregate demand led to acceleration in demand for imported goods and the contribution of net exports to quarterly growth became negative (Figure 24). External demand conditions will continue to play a critical role regarding the pace of the recovery in economic activity in the forthcoming period as well. As of December, no significant upward revision in growth forecasts for developed countries – as compared to the forecasts in October Inflation Report – is deemed necessary. Within this framework, even if the recently issued data affirm that moderate recovery in exports continues, given the current level of exports and the expected pace of global economic recovery, external demand is not expected to reach its pre-crisis levels for a long period of time (Figure 28). The weak course of external demand would restrain economic activity and employment growth through its impact on industrial production. Indicators such as capacity utilization rates and per capita hours worked across industries suggest that resource utilization remains low throughout the economy. Nevertheless, indicators of the labor market started to recover in the third quarter of 2009. Although the upward trend in unemployment rates reversed in  BIS Review 31/2010  11  seasonally adjusted terms, the unemployment rate is still quite high compared to the precrisis level (Figure 29). The mentioned recovery in unemployment rates as of the third quarter of 2009 was mainly driven by the pick-up in non-farm employment (Figure 30).
Overall, there has not been any major change in medium-term forecasts and the monetary policy stance, since economic activity has evolved in line with the outlook presented in the October Inflation Report. However, all the main variables affecting the short-term forecast have been subject to an upward revision. In this respect, while short-term forecasts were revised upwards significantly, there has been no major change regarding medium-term forecasts. The revised forecasts indicate that there will be no significant upside pressures on inflation, even if policy rates remain at low levels for a long period. However, as depicted in the slide, inflation is likely to display a significant increase over the next two months due to tax hikes and strong base effects (Figure 34). Moreover, the annual inflation rate may post a limited increase in the second quarter of 2010, due to the low base effect generated by the Consumer Price Index in the first half of 2009, when the downside effects of the global crisis on prices became more pronounced. Accordingly, even if inflation remains above the target for some time, parallel to the gradual phasing out impact of the tax hikes, inflation is expected to trend downwards, stabilizing at around 5 percent over the medium term. BIS Review 31/2010  15  As you may have noticed, I have frequently referred to the base effect today. The reason for this is that the base effect will influence the course of annual inflation throughout 2010 to a large extent.