Economic activity slowed sharply from the beginning of 2000, with growth reaching a trough in the fourth quarter of 2001 before recovering somewhat in 2002 (Figure 1). The slowdown in the Belgian economy was largely in step with that in the euro-zone economy although, as usual, the Belgian cycle slightly leads the euro-zone cycle (probably owing to specialisation in intermediate manufactured goods) and has larger amplitude (owing to the relative openness of the economy) (Figure 2). The main cause of the slowdown was the deterioration in the international business climate, which resulted in less demand for Belgian exports and reduced business profitability. Domestic demand was also weakened somewhat  by the loss of purchasing power resulting from increases in energy prices. Declining consumer confidence further weakened domestic demand growth. Employment growth slowed with the usual two to three quarter lag and unemployment began to rise in the last quarter of 2001, after having reached the lowest rate (6.6 per cent for 2001) in 10 years. The slowdown has eased tensions on production capacity that had emerged during the upswing. The OECD estimates that the output gap has fallen from 1.7 per cent of potential GDP in 2000 to minus 1.5 per cent in 2002. This, together with appreciation of the euro, the passing of the food price shock and the abolition of the radio and television licence fees in Flanders and Brussels, has contributed to a sharp fall in inflation to around 1½ per cent in 2002.