Spain has not escaped the international economic slowdown since 2000 but has fared better than most countries. Output growth for 2002 reached 2 per cent, which means that the positive growth differential with the euro area remained at 1¼ percentage points, its average level since 1996. This strong growth performance, which is similar to that of the United States since the mid-1990s (Figure 1), is due mainly to strong job creation which has boosted domestic demand, especially private consumption and residential investment. However, robust growth of employment did not prevent a cyclical rise in the unemployment rate to 11½ per cent in late 2002, the first increase since 1994, which is also due to the low sensitivity of the labour force to economic conditions and the steep rise in immigration. Despite an easing of labour market pressures and a slightly negative output gap, inflation has not slowed, partly because of exceptional factors such as the changeover to the euro. In February 2003, consumer prices were 3¾ per cent higher than a year earlier. The inflation differential with the euro area of about 1¼ percentage points since 1999 tends to erode the economy’s international competitiveness.