Growth in the euro area slumped as 2014 wore on, and inflation — already negative in some countries — continued to drift down, reflecting considerable excess capacity. Economic activity is projected to recover slowly as confidence improves and uncertainty about banks’ balance sheets declines. However, growth will remain weak because of still-high public and private debt, tight credit conditions and high unemployment. A number of countries are still vulnerable to financial turmoil or other negative shocks. High unemployment and large margins of excess capacity will recede only slowly, putting continued downward pressure on inflation.