The second pillar of the ECB's strategy ensures that the interplay between supply and demand in the real economy is sufficiently taken into consideration when evaluating the risks to price stability. It comprises a variety of predominantly non-monetary factors, which are relevant for future price developments. Some of the factors of the second pillar can be especially relevant in the short term, for example the development of oil prices. For monetary policy decisions, it is important to know whether, for example, shocks originate from the supply side or from the demand side of the economy, whether they exert a temporary or permanent influence on prices, or whether they result from a domestic or an external source. As we have experienced in the past few months, an oil price shock, which is an external shock from the supply side, can exert a significant direct influence on consumer prices. In such a situation, the central bank has to assess whether this direct effect will remain temporary or whether it will translate into a more permanent impact on prices. This depends to a large extent on the ability of central banks to keep inflation expectations low. Other indicators of the second pillar, for example the development of labour costs, have a more medium-term content. Under the second pillar of the strategy, the production of macroeconomic projections for real GDP growth and inflation enables some of the factors considered to be structured and summarised.
However, on the basis of the information available at present, it is likely that world economic activity will remain at an acceptable level this year. In addition, it should be borne in mind that the euro area itself is also a large domestic market - it is, in fact, the second largest in the world - accounting for over 15% of world GDP. Exports of goods and services only amount to around 17% of euro area GDP: this implies that the influence of external trade on real economic growth is limited. Instead, euro area economic activity is mainly influenced by domestic factors. Economic growth in the euro area has recovered considerably since the second half of 1999. Real GDP growth is expected to have been around 3 1/2% in 2000, compared with an average real GDP growth of 2% in the 1990s. Real GDP growth in the euro area has slowed down somewhat since the second half of 2000, as demonstrated in recently published GDP data and short-term indicators, such as industrial production and, to some extent, the European Commission's industrial confidence indicator. However, at the same time, this indicator, together with the capacity utilisation rate, have remained at a high level and continue to give a relatively favourable picture. Regarding private consumption, the European Commission's consumer confidence indicator recovered on average in December and January, following a dip in the previous months. In particular, private households were more optimistic about the future economic situation as well as their own financial situation.