Economic activity reached its trough in the second half of 2001, as the economic fallout from 11 September accelerated the deterioration that had begun earlier. Real GDP fell in the first half and was steady in the second half of 2001, and year-average over year-average growth measured only ¼ per cent (Figure 1, Panel A). The slowdown in growth was modest, both in comparison to the declines in GDP witnessed in earlier recessions (such as in the early 1990s) and in view of the deterioration in equity prices since early 2000 and the shock of the terrorist attacks. Final domestic demand slowed considerably, and de-stocking subtracted substantially from output, although net exports placed a smaller drag on activity than in recent years (Table 1). Despite the short-lived decline in GDP, resource utilisation dropped notably: the unemployment rate rose a bit in 2001 from the low of 4 per cent in 2000 and moved significantly higher in early 2002, and output fell somewhat below potential last year (Panel B). Inflation decelerated with the fall in energy prices and an easing in core inflation (Panel C). The mild downturn barely dented the economy’s reliance on inflows of foreign capital to finance domestic demand, however, and the current account deficit remained near 4 per cent of GDP.