2005 - OPEC

North America, Japan and Europe
In the US, economic momentum was supported by consumer spending and investment, since
net trade continued to have a negative influence on GDP. During the second and third quarters
growth in the US remained stable. However, the Gulf of Mexico hurricanes disrupted energy
supplies in August and September, pushing fuel prices upwards and US consumer spending
stagnated in the final quarter of the year. In Japan and Europe growth rates improved steadily
through the final quarter and this recovery offset the US weakness.
Personal consumption growth in the US was relatively steady, achieving a rate of 3.5 per
cent for the year despite the fourth quarter impact. Throughout the whole of 2005 investment
spending in the US was impressive – substantial increases in inventories and continued growth
in government consumption added further to domestic demand. As in 2004, the main drag
on growth was the widening trade deficit, which contributed to GDP growth falling to 3.5 per
cent in 2005, from the 4.2 per cent achieved in 2004. In 2005, the US current account deficit
reached 6.4 per cent of GDP, but the deteriorating balance of payments outlook had little
impact on the US dollar, probably because US interest rates rose throughout the year.
The US Federal Reserve also continued to increase the Federal Funds rate. Although inflation
remained under control, the monetary authorities feared that the combination of shrinking spare
capacity and external pressures from rising commodity prices might lead to higher inflation.
By the end of 2005, the Federal Funds rate had reached 4.25 per cent, but long-term bond
yields actually fell during the year confirming that the financial markets did not anticipate any
significant acceleration in US inflation.
Growth rates for both Canada and Mexico were close to three per cent in 2005. The Cana-
dian economy has performed well in recent years – benefiting from a substantial exposure to
commodity industries. Real GDP growth in Mexico slowed from 4.2 per cent in 2004 to three
per cent due to a combination of slower US growth, tighter monetary policy and competition
from Asia that affected both domestic and export demand. After many years of depressed
private consumption, Japanese personal spending grew strongly in the final quarter of 2003
and this trend was maintained until the final quarter of 2004. This consumption growth was
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