The international community response to the crisis in the Middle East and the risks of potential Brexit are additional factors that add to the geopolitical risks. Global growth prospects remain cloudy again, with IMF now (WEO, January 2016) expecting more gradual pick up in global growth from the estimated 3.1% in 2015 to 3.4% in 2016 and 3.6% in 2017 (as compared to 3.6% for 2016 and 3.8% for 2017 in October 2015, WEO). Risks continue to weigh on the downside and are particularly prominent for the emerging and developing economies given their higher vulnerability to sudden switches in global confidence, reversals in capital flows and financial markets volatility. The challenging world translates into challenging environment for monetary policy making. Continuous vigilance on multiple fronts, while successfully juggling between difficult trade-offs in decision making is what has become the new art of central banking nowadays. The main challenge for monetary authorities, not only today, but for years back, is how to deliver the most appropriate policy mix that will support demand and activity, while safeguarding against macro-financial risks. Recent crisis has brought financial stability to the fore acknowledging the importance of central banks in financial stability, a task which they have historically performed, though to a varying degrees. According to a BIS study (2009) central banks’ arrangements for financial stability as they stood before the crisis have differed widely across countries, both for normal and crisis times.
If the increase in oil prices is sustained, the expected decline in annual HICP inflation rates to below 2% later in the spring could be less pronounced – and inflation rates during 2002 could turn out to be somewhat higher – than we expected in late 2001. Beyond the shorter term, in the light of current expectations of a gradual economic recovery in the euro area, upward pressure on prices from aggregate demand should remain contained. However, this outlook for inflation is fundamentally dependent on continued wage moderation. In this respect, there is some cause for concern with regard to ongoing wage negotiations. The economic downturn in the euro area in 2001 also presented challenges for fiscal policy. Since some countries came close to the 3% limit for the deficit to GDP ratio, the experience of 2001 clearly  2  BIS Review 26/2002  demonstrated the need for all countries to undertake consolidation efforts in good time to ensure a fiscal position close to balance or in surplus before the start of a downturn. In order to prevent problems like those experienced last year from recurring in the future, it is vital that the commitments made to achieving balanced budgets by 2003-04 be firmly followed up in the Member States concerned. Finally, I would like to highlight the need for structural reforms aimed at improving the functioning of product and financial markets. If implemented vigorously, these reforms can increase euro area growth potential and employment on a sustainable basis.