2005 - OPEC

confidence suggested an improving trend, but these indications were not confirmed by actual
spending or production data. In 2005, Eurozone GDP rose by only 1.4 per cent. Despite the
fact that economic growth remained below previous years, the European Central Bank raised
interest rates in December since Eurozone inflation remained above two per cent.
The growth rate of the European Union as a whole was boosted by the accession of ten new
member states in May 2004. For example, the Czech Republic achieved a remarkable growth
rate of almost six per cent in 2005. This solid performance was due primarily to high levels
of inward direct investment, notably in the motor industry. Poland, the largest new member
of the EU achieved by far the best economic performance in 2004, but growth slowed in
2005. The slowdown was particularly apparent in the first half of the year as very low levels
of investment and private consumption limited growth to below three per cent. A recovery in
the second half pushed the GDP growth rate to 3.2 per cent for 2005 as a whole.
In Hungary, inflation remained under control, but high government spending created problems
for fiscal policy. In 2004, a significant switch from domestic demand to the export sector and
in turn net exports, made a positive contribution to satisfactory GDP growth of four per cent.
This trend continued in 2005 and GDP growth accelerated to 4.2 per cent. It should, however,
be noted that to some extent the ongoing economic progress of the accession states depends
on a Eurozone recovery.
For those accession states looking to achieve membership of the Eurozone area before the
end of this decade, internal reforms remain vital. Fiscal consolidation is the main challenge
facing the region, but other impediments to growth include institutional reform and legal
obstacles to business and inward investment. As globalisation and the increasing integra-
tion of Asia into European business networks continues apace, these countries can no longer
rely solely on low labour costs to ensure export business or foreign direct investment from
Eurozone trade partners.
Former Soviet Union
High energy and metal prices boosted the growth rates of the Former Soviet Union economies
in 2003 and 2004. In fact, accelerating demand for industrial commodities pushed the growth
rate for this region to a very healthy 8.2 per cent in 2004, but in 2005 this dropped off a
little to 6.5 per cent as a result of lower levels of investment and the declining competitive-
ness of manufacturing industries restricted output.
13