Risks to GDP growth in the coming two years are on the downside due to potential financial volatility, lack of confidence about future growth prospects, and impaired and stretched balance sheets of banks and households. The euro area is particularly strongly exposed to these negative risks.
● Inflation is likely to remain below target in many OECD economies due to persistent slack and the recent sharp falls in oil and food prices, even if the latter will cushion growth. The euro area is at risk of deflation if growth stagnates or if inflation expectations fall further.
● If demand does not pick up as projected, some economies, notably the euro area, could get stuck in persistent stagnation, with demand weakness undermining potential growth, which in turn would have adverse effects on the ability of macroeconomic policy to support aggregate demand.
