Output growth is just now recovering from the slowdown that took hold during 2000. Output growth in 2000 – at 3½ per cent – had been the strongest in nearly a decade, accompanied by robust job creation, while core inflation was still subdued. However, activity began to slow significantly from mid-2000 onwards and output fell in the fourth quarter of 2001. The slowing of growth largely reflected a number of common factors that operated to synchronise developments across the OECD, even though the impact and policy response have differed to some extent across countries and regions. First, the sharp hike in oil prices in 1999/2000 reduced purchasing power and squeezed profit margins, while the rise in underlying inflationary pressures led to a tightening of monetary policy by central banks, including the ECB. The continued weakness of the euro and strong monetary growth also added to concerns about the risks to price stability. Second, the ICT (information and communication technology) sector bubble burst, which initiated a sharp fall in share prices. Third, the simultaneous forces at work led to a slump in external trade. And finally, the 11 September events in 2001 seriously dented confidence. As a result euro area output growth fell to 1½ per cent in 2001. Employment has, nevertheless, remained fairly resilient and unemployment started to drift up only towards the end of 2001. With the unwinding of most of the negative shocks, a growth-supportive macroeconomic policy stance and a strong recovery in world trade, output growth is projected to gather steam during 2002 and to be above potential growth in 2003, while still leaving a negative output gap.