Let me now explain our assessment in greater detail, starting with the economic analysis. Following a contraction of 0.2 percent, quarter on quarter, in the second quarter of 2012, euro area real GDP declined by 0.1 percent in the third quarter. Available statistics and survey indicators continue to signal further weakness in activity in the last quarter of the year, although more recently some indicators have stabilized at low levels and financial market confidence has improved further. Over the shorter term, weak activity is expected to extend into next year, reflecting the adverse impact on domestic expenditure of weak consumer and investor sentiment and subdued foreign demand. A gradual recovery should start later in 2013 as our accommodative monetary policy stance and significant improvement in financial market confidence work their way through to private domestic expenditure, and a strengthening of foreign demand should support export growth.
This assessment is reflected in the December 2012 eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP growth in a range between -0.6 percent and -0.4 percent for 2012, between -0.9 percent and 0.3 percent for 2013 and between 0.2 percent and 2.2 percent for 2014. Compared with the September 2012 ECB staff macroeconomic projections, the ranges for 2012 and 2013 have been revised downwards.
The Governing Council continues to see downside risks to the economic outlook for the euro area. These are mainly related to uncertainties about the resolution of sovereign debt and governance issues in the euro area, geopolitical issues and fiscal policy decisions in the United States possibly damping sentiment for longer than currently assumed and delaying further the recovery of private investment, employment and consumption.
According to Eurostat's flash estimate, euro area annual HICP inflation fell to 2.2 percent in November 2012, down from 2.5 percent in October and from 2.6 percent in the two previous months. On the basis of current futures prices for oil, inflation rates are expected to decline further to below 2 percent next year. Over the policy-relevant horizon, in an environment of weak economic activity in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain moderate.