Economic growth slowed in most of the major industrialised countries over the course of last year. The slowdown has been particularly apparent in continental Europe, with GDP falling in the fourth quarter in Germany, France and Italy. Early indications suggest that activity has been subdued in the first quarter of this year, with industrial production declining in Germany, Spain and Sweden, the provisional UK figures recording the lowest per quarter growth since 1992, and a continued deterioration apparent in indicators of the general business climate in Europe. We have made a significant downward adjustment to our previous forecasts for Europe, with EU-wide GDP now projected to rise by only 1½ per cent this year, after growth of 2½ per cent in 1995. We expect growth to pick-up over the course of the year as the contractionary effects of ongoing inventory adjustment come to an end and as the effects from a more relaxed monetary stance begin to outweigh those from ongoing fiscal consolidation. Recent currency movements should help to stimulate external demand in Germany and France, with the D-mark having depreciated against the US dollar by around 7 per cent over the past four months. Private sector expenditure is also likely to benefit from the recent sustained appreciation of equity prices in most national stockmarkets, with prices at the end of April having risen by over 11 per cent in Germany, France, Italy and Spain since the beginning of the year.