Growth in the euro zone has been relatively weak, but last year there were signs that economic activity was beginning to improve there, too. At the same time as growth in demand in the world economy has been strong, price pressures have been held back. Although oil and other commodities have become significantly more expensive for consumers, the general price increases have been relatively small on the whole. This can probably be partly explained by increasing international competition. The upswing in global economic activity has also characterised developments in the Swedish economy, which has grown strongly in recent years, with the exception of a slowdown at the end of 2004/beginning of 2005. Despite the good growth in demand, inflation has been low in Sweden. This is largely attributable to import prices excluding oil  BIS Review 44/2006  1  developing weakly and to cost pressures being held back, partly by the strong productivity growth and low capacity utilisation. The development we envisaged in the February Inflation Report was that international growth would continue to be good. There were some question marks regarding developments in the United States and in the euro area, where preliminary statistics for the fourth quarter of 2005 were surprisingly weak. Our assessment was that this could largely be explained by transient factors and that the upswing could nevertheless continue, although possibly at a slightly slower rate. Our assessment for the Swedish economy was that domestic demand would be strong over the coming years, with GDP growth peaking in 2006.
In the euro zone, developments during the fourth quarter were roughly as expected, but the indicators published since then point towards slightly more favourable developments there than was expected in February. At the same time, the oil price has risen much more than expected and forward prices for oil have also risen. We can therefore assume that oil and petrol prices will remain at a high level for some time to come. This of course comprises an uncertainty factor for the economic assessment and it is difficult to ascertain what consequences it will have. The experiences so far indicate that the international economic upswing has been resistant to the increasing oil prices. At home, a considerable amount of new statistics have been published since February, including the national accounts for the final quarter of 2005. GDP growth during the fourth quarter was slightly lower than expected, but for the year 2005 as a whole growth was nevertheless in line with our forecast because the outcomes for earlier periods had been revised upwards. The figures show that exports increased more than anticipated last year, which with hindsight is not surprising, given the strong international growth. On the other hand, both household consumption and investment were weaker during the fourth quarter than in our earlier forecast. Judging by the recent economic indicators, developments so far this year have been better than at the end of 2005.