Inflation is higher in the euro area than in the US and approximately in line with the objective defined by the European Central Bank. In the euro area, however, capacity utilisation is very low, unemployment high and the outlook for growth is weaker. Against this background, it will probably also take time before interest rates rise markedly in the euro area. Chart 14. USD/EUR and the US current account balance as a percentage of GDP 0.8  0 USD/EUR (left-hand scale)  1  -2  1.2  -4 Current account balance (right-hand scale)  1.4 1999  2000  2001  2002  2003  -6 2004  Sources: OECD and Norges Bank  The imbalances in world trade represent a particular risk. The US is running a substantial trade deficit, which was financed for a number of years by private capital flows to the US business sector. The flows have subsided and led to a sharp fall in the US dollar at the same time as the euro has appreciated. Through purchases of US government securities, Asian countries have thus far kept their currencies stable against the US dollar. The US federal budget deficit is an important source of the imbalances in world trade. It appears that it will take time before the deficit is reduced to a considerable extent. This entails a risk that the dollar will depreciate further and that US long-term government bond yields will move up.
16  17  18  19  20  Figure 10 Business expectations (IMCE) (1) (original index)  80  80  Investment expectations (2)  70  70 Present situation  60  60  50  50  40  40  30  30  Employment expectations (3)  20  20  10  10 10  11  12  13  14  15  16  17  18  (1) Value above (below) 50 shows optimism (pessimism). (2) Simple average between expected investments in manufacturing and trade. (3) Simple average of expected employment in manufacturing, trade and construction. Source: Icare/Universidad Adolfo Ibáñez.