The economic recovery in the euro area lost considerable momentum in 2004. After a strong increase in the first half of the year, real GDP rose at an annual rate of less than 1 percent in the following two quarters. Overall capacity utilization, which previously had increased for the first time in several years, fell once again. The main reason for this was that export growth decelerated as a consequence of the slowdown in the world economy and the appreciation of the euro. Though domestic demand picked up somewhat, it was not strong enough to compensate for weaker exports. Fixed investment could recover after a prolonged period of weakness; however, private consumption rose only modestly. Against the background of the economic slowdown, unemployment stayed high. Consumer prices picked up considerably near the end of 2004 because of the surge in oil prices; in the first two months of this year, the inflation rate amounted to slightly less than 2 percent.