Activity slowed in 2005, as the waning of the Olympics-related stimulus and, to a lesser extent, higher oil prices weighed on domestic demand. The positive growth differential with the euro area, however, remained substantial. GDP growth should continue at around 3¾ per cent over the next two years, helped by a rebound in investment activity. Although inflation is set to diminish to around 3% by 2007, it will continue to exceed the euro area average — a trend that will at some point undermine competitiveness if it is not reversed. Wide-ranging reforms of the pension and health care systems are needed to ensure the sustainability of the public finances. Recent measures to improve the operation of public enterprises are welcome. The rigorous implementation of the National Reform Programme, which sets as priorities restoring sound public finances, improving the business environment and boosting productivity and employment, would create room for continued strong growth.