In the Desert[La traversée du désert]

In 2002 economic growth was weaker than anticipated. The uncertainty due to the geopolitical tensions pushed up oil prices and depressed equity prices as well as business and consumer confidence. However, the Iraqi issue does not entirely explain the weakness of activity in Europe and in the USA. Private investment is impeded not only by excessive spare capacity, but also by the need to improve corporate balance sheets and to lower indebtedness. Rising unemployment and the collapse of stock markets hamper households' consumption and subsequently business investment. Company profitability will be back to more reasonable levels around mid-2003 and a slow recovery is expected from then, although output growth will remain below its potential. One important reason for the US economy to grow more rapidly than the Euro Area economies lies in the more expansionary policy mix.