Output has slowed to below its potential growth rate, reflecting a dramatic contraction in house building. As this flattens out, GDP growth should progressively return to trend. Core inflation has been high, partly due to rising housing costs and the flow-on of higher energy prices to other goods and services. But, as long as expectations of inflation remain relatively low, these effects should fade and inflation should edge down.

The longest expansion in the post-war history of Japan remains on track, led by buoyant corporate activity, although stagnant wages have limited the positive impact on the household sector thus far. The further tightening of the labour market is projected to boost wage gains during 2007-08, leading to faster growth in private consumption and pushing inflation into positive territory.

The euro area started this year with considerable momentum. Growth in 2006 was higher than it has been since 2000, with stronger activity leading to a further improvement in the labour market. The outlook is bright. Consumption is expected to underpin the recovery going forward, with business and residential investment playing less of a role. GDP is projected to grow in the 2 to 2½ per cent range through this year and next, with inflation staying at close to 2%.

The economy recovered strongly in 2006 and growth is expected to slow down only slightly to 2.9% this year and 2.2% in 2008. Employment growth has been strong and the unemployment rate is expected to fall by almost 2 percentage points to 6.3%. The value-added tax rate increase should only temporarily damp consumption in 2007, while investment growth is projected to remain solid, also reflecting the recent recovery in construction activity. With growth significantly above potential for two years in a row, the output gap will be closed this year, with inflation rising towards 2% in 2008.

The economy ended 2006 somewhat more strongly, after stalling in the third quarter. Growth is projected to remain above the OECD’s estimate of its potential rate, despite slowing slightly in 2008. Steady employment increases should be maintained and unemployment may continue to fall. The budget deficit fell by more than expected in 2006 and will probably decline further.

The long-awaited recovery was confirmed in 2006 as GDP grew by nearly 2%. Buoyant export markets and quality improvements by Italian exporters gave rise to solid export gains, which then stimulated domestic demand and jobs growth. Growth should remain strong in both 2007 and 2008 so long as foreign demand stays robust and restructuring continues. The output gap will narrow rapidly given that potential output growth is estimated to be less than 1½ per cent, and inflation could rise somewhat.

Output grew by 2¾ per cent in 2006, close to its trend rate, with only moderate labour market tensions, because of strong inward migration. Consumer price inflation veered up temporarily to just above 3%, partly because of a hike in electricity and gas prices, but is expected to drop back to about 2%. Output growth is likely to remain brisk, propelled by strong business investment.

After being restricted to 2½ per cent in 2006 by the negative impact of a severe drought, the increase in activity could reach 3¼ per cent in 2007 and 2008, which is close to potential growth. Stronger exports should offset slowing domestic demand and unemployment is likely to remain low.

After accelerating to almost 3½ per cent in 2006, GDP growth is expected to decelerate over the next two years, with a slowdown in net exports and investment. Inflation may move close to 2% towards the end of the projection period as output approaches its full capacity level.

After a robust expansion of 3% in 2006, the pace of growth should moderate in 2007-08, but remain sufficiently strong to close the output gap by the end of the projection period. Domestic demand is underpinned by higher employment and real incomes. Recent improvements in competitiveness should help enhance export market performance. Inflation is expected to be only gradually affected by rising cost pressures.

Economic activity is expected to ease further, but it will remain robust with real GDP growth slightly below 5% by the end of the projection period. Inflation will be pushed up towards the upper limit of the Central Bank’s target band, though this will have more to do with increases in excise duty and price deregulation than demand pressure.

Despite the ending of the house price boom and the recent slowdown in consumer spending, GDP is growing faster than its potential rate, driven by export and investment demand. Capacity constraints and labour shortages are becoming ever more pronounced, accentuating the risk of overheating.

Real GDP surged by 5.5% in 2006, driven largely by exports, although consumption growth was sustained and private investment picked up. Output is expected to expand at close to its trend rate of 3% this year and next. While unemployment remains high, it is expected to continue to decline over the coming year. Inflation is expected to remain moderate.

Buoyed by vigorous domestic demand, real GDP grew strongly in 2006 and is expected to continue to expand at close to 4% over this year and next. With the output gap remaining positive and unit labour costs growing relatively strongly, inflationary pressures are likely to persist, eroding competitiveness. The current account deficit is expected to remain large.

Austerity measures to redress public finances are having a significant impact on the economy. Reflecting weakening domestic demand, activity in 2007 and 2008 is projected to grow at a rate well below its trend (about 4%), despite the strong expansion of exports. After a temporary boost due to changes in value-added taxes and regulated prices, inflation is expected to fall.

Economic growth has slowed markedly, but inflationary pressures and a large external deficit persist. A tight monetary stance is projected to curb domestic demand despite fiscal policy moving towards expansion. While inflation should converge towards the official target, the external deficit is likely to remain uncomfortably high over the projection period. Renewed financial market nervousness and downward pressure on the exchange rate could therefore complicate the adjustment process and make for a hard landing of the economy.

Output expanded by 6.0% in 2006, the fastest pace since 2002. It was driven by strong consumption and business investment, but the housing boom is over. The rate of growth of GDP is expected to slow to 5.5% in 2007 and 4.1% in 2008 as consumption weakens and housing investment falls.

The slowdown in the pace of economic activity during 2006 is likely to be gradually reversed in 2007, boosting output growth from around 4¼ per cent in 2007 to 4¾ per cent in 2008. Buoyant demand from other Asian countries is sustaining export growth at a double-digit rate, despite the marked appreciation of the won, which has helped keep inflation below the Bank of Korea’s target zone.

Real GDP growth accelerated to 6.2% in 2006. Exports of financial services continued to be the main driving force, thanks to positive international financial market developments, confirming that the economy has weathered well the introduction of taxes on interest income. Stronger activity in the business services sector also contributed to the recovery. Improved employment trends for resident workers have gradually lowered the unemployment rate. Following slower growth of export markets, the recovery is set to weaken temporarily but should strengthen again in 2008 on the back of robust international financial markets and stronger domestic demand.

GDP slowed in the second half of last year, as a result of weaker external demand and a deceleration in public spending. Private investment continued to be buoyant, however, and is projected to remain strong in 2007 and 2008, underpinning GDP growth between 3½ and 4%. Inflation should remain around 4% until after mid-2007, easing thereafter to reach 3.3% by the end of 2008. The current account deficit is expected to widen gradually.

The economy grew robustly in 2006, by almost 3%. Exports benefited from faster demand in the euro area and improved price competitiveness. Private consumption was fuelled by higher real wages and employment gains. Growth is expected to remain well above potential, closing the output gap already this year. Rising labour market tensions will cause wages and prices to accelerate over the projection horizon.

Activity accelerated in the second half of 2006, while currency appreciation has set back the return to a more balanced growth path and underlying inflationary pressures have not yet dissipated. Recent further monetary tightening should gradually rein in household spending, and wages are expected to slowly moderate as the unemployment rate rises: growth may be modest over the projection period.

Mainland Norway is enjoying one of its longest periods of above potential growth. The pace of real GDP growth reached 4½ per cent in 2006. It is projected to slow to a still robust 4% in 2007 and then to 2½ per cent in 2008, as household demand and investment moderate under the impact of an assumed tightening of monetary conditions.

Poland’s economic performance improved further in 2006. The pace of the expansion strengthened, with a GDP growth rate close to 6%, driven mainly by private consumption and investment. The dynamism of job creation and probable renewed emigration have led to a pronounced decline in the unemployment rate. Productivity gains have offset wage increases until now, but inflation has nevertheless ticked up recently.

GDP advanced by 1.3% in 2006, led by stronger export growth. The expansion is expected to strengthen and become more broad-based in 2007 and 2008. The large negative output gap should drive inflation down to the euro area average. Unemployment, though gradually declining, remains high and is expected to translate into some wage moderation.

Economic growth is projected to rise to around 8¾ per cent in 2007 supported by production at new automobile plants but to ease to 7½ per cent in 2008. Such production also underpins a large reduction in the current account deficit. Unemployment should continue to fall on the back of strong employment expansion. Disinflation is set to resume because of lower energy prices, high productivity growth and appreciation of the koruna.

Activity is likely to remain buoyant in 2007 before slowing in 2008. Although rising interest rates will curb domestic demand, it should remain the main driver of growth, led by non residential investment and public consumption. Headline inflation may fall in 2007, reflecting the negative albeit waning effects of lower oil prices, but is expected to rebound in 2008.

The Swedish economy continues to grow rapidly without showing signs of weakening. Growth in 2007 is projected to be 4.3%, only slightly lower than in 2006. Private consumption will be particularly strong, reflecting the significant improvement in the labour market. As the output gap is clearly positive, underlying inflation will continue to increase from previously very low levels.

Economic growth is expected to decelerate somewhat, to about 2% in 2007 and 2008. Expansion at this pace will allow employment to continue growing, roughly in line with rising labour supply, and wage growth should remain moderate. Inflation is projected to stay low throughout the projection period, though pushing up somewhat in 2008.

Growth should remain close to 6% in 2007 and 2008, absent any further shocks. But the economy is not yet fully resilient to domestic and international turbulence. Disinflation will resume but at a slower pace than officially projected.

GDP grew by 3.7% in 2006, with activity gathering considerable momentum in the final quarter, when investment rebounded vigorously. Private consumption is underpinning growth, due to improving labour market conditions, rising real earnings and robust credit growth. The trade surplus remains sizeable, predominantly on the back of higher export prices and despite a recovery -driven surge in imports. Headline inflation is well below the mid-point of the target range, and inflation expectations are well anchored.

Output growth moderated slightly in the second half of 2006, after a very strong first half, as the restrictive measures that were put in place in the middle of the year took effect. Despite this slowdown, growth averaged 10¾ per cent in 2006. Domestic demand is projected to accelerate as rural consumption increases and construction recovers from the administrative measures taken in 2006. Although the currency appreciated against the dollar, it depreciated in effective terms during 2006 and has only appreciated modestly in 2007. Easing of world demand and the slight appreciation of the currency is likely to result in the some easing of export growth, with only part of the acceleration of domestic demand offset by faster import growth, leaving the growth of GDP at 10.4% in 2007 and 2008. The current account surplus reached 9.5% of GDP in 2006 and is expected to continue its increase, reaching over 10½ per cent of GDP ($368 billion) by 2008. Inflation is projected to be slightly higher this year due to the acceleration in food prices, but ease to 1.5% in 2008.

Recent rapid economic growth is expected to continue and be close to 9% in fiscal year 2006, despite a poor performance from the agricultural sector. Investment has been particularly buoyant during this expansion, contributing to a substantial increase in the economy’s potential growth rate. Monetary and fiscal policies have both become tighter, which will lead to slower growth in the non-agricultural sector. A return to a normal harvest, however, should limit the extent of the slowdown in the whole economy. Inflation, as measured by the GDP deflator, is expected to remain stable at 5%, in line with official objectives. The current account has moved back into a deficit of 1.3% of GDP in 2006 and seems likely to reach 2.0% of GDP in fiscal year 2008.

Real GDP growth in 2007 is likely to remain close to the levels of 2005–06, before moderating in 2008 as the impulse from recent terms-of-trade improvements dissipates. Growth will still be primarily consumption-driven, but the contribution of fixed investment to growth should increase. Inflation is likely to fall further, owing mainly to shrinking external surpluses, further de-dollarisation and slower growth of utilities tariffs and other regulated prices.