Annual Report 2004

Japanese output expanded by
some 4% in 2004, mainly on the back
of very vigorous growth until spring
2004. However, the Japanese economy
— especially gross fixed capital
formation — slowed down perceptibly
thereafter. Furthermore, JapanÕs exports
lost momentum when Chinese
demand slackened. Additionally, the
decline in public investment weighed
on growth. Conversely, with employment
growth boosting consumer confidence,
household spending was
healthy even though real incomes
rose only moderately. Japan could
still not shake loose deflation in
2004. Despite fairly animated output
growthandthesurgeinoilprices,
consumer prices persisted at the
year-earlier level. Consequently, the
Bank of Japan stayed its monetary
policy course with interest rates near
0% since 2001.
At the beginning of 2004, ChinaÕs
economy showed signs of overheating,
such as capacity constraints of
the energy and transport infrastructures
and quickening inflation. But
from mid-2004, above all because
policymakers steered a more restrictive
course, the pace of economic
growth eased in China, too, though
it remained at a high level. As a case
in point, minimum reserve rates for
commercial banks were raised and
standards for investment lending were
tightened. These measures brought
the growth in loans to the nonbank
sector to a standstill at mid-year.
Furthermore, public-sector infrastructure
investment was scaled back.
Finally, the surge in commodity and
oil prices also tempered growth. Yet
despite all these restraints, Chinese
economic activity shot up by about
9.5% in 2004. High growth in tandem
with soaring commodity prices
pushed up inflation considerably to
ayearlyrateofalmost4%.
The Eurosystem Secures Price Stability
Russia chalked up continued solid
economic growth of 6.6% in 2004.
This expansion was sustained by a
massive boost in investment drawing
on quickly rising profits and a notable
increase in consumer spending fueled
by rapid gains in real wages. As an
exporter of oil and commodities,
Russia benefited from the high prices
of these goods. The country again
concluded the year with a large
current account surplus thanks to
the pronounced improvement of the
terms of trade. The budget closed
with a surplus as a result of substantial
tax receipts in connection with
expensive oil. While inflation came
down somewhat from 2003 levels,
it remained high at 10,7%.
The eight new Member States
located in Central and Eastern
Europe (CEEC-8) showed a fairly
solid growth performance in 2004,
as did Southeastern Europe (with
the exception of the Former Yugoslav
Republic of Macedonia), Ukraine and
Belarus. The upswing in these countries
was buoyed mainly by strengthening
private investment and household
spending alongside healthy
exports stimulated by the revival in
the remainder of the EU. Consumer
price inflation also picked up in
2004, with the outcomes spanning a
large range among countries: Infla-
Japanese economy
posts robust growth
— deflation persists
Russia — high growth,
high inflation
Robust growth in the
Central and Eastern
European new
Member States
Chinese business
activity overheats
Annual Report 2004 ×
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