1 Overview

The euro area economy stagnated at the end of 2023 amid tight financing conditions, subdued confidence and past competitiveness losses. Incoming information suggests a slower recovery in the short run than was foreseen in the December 2023 projections. Nevertheless, economic growth is projected to gradually pick up during this year as real disposable income rises, amid declining inflation and robust wage growth, and as the terms of trade improve. With the current shipping disruptions in the Red Sea unlikely to cause significant renewed supply constraints, export growth is expected to catch up with strengthening foreign demand. Over the medium term the recovery is seen to also be supported by the gradual fading of the impact from the ECB’s monetary policy tightening. Overall, annual average real GDP growth is expected to be 0.6% in 2024, and to strengthen to 1.5% in 2025 and 1.6% in 2026. Compared with the December 2023 projections, the outlook for GDP growth has been revised down for 2024, owing to carry-over effects from past negative data surprises and weaker incoming forward-looking information, it is unrevised for 2025 and has been revised slightly up for 2026.^[1]

Inflation is projected to moderate further owing to the ongoing easing of pipeline pressures and the impact of monetary policy tightening, albeit at a more modest pace than seen in 2023. Pipeline price pressures should continue to fade with the shipping disruptions in the Red Sea expected to have only a limited upward impact. As energy prices decline, strong labour cost developments should be the dominant driver of inflation in the Harmonised Index of Consumer Prices (HICP) excluding energy and food. Nominal wage growth is set to remain elevated, driven by persistent tightness in the labour market, but it should gradually ease over the projection horizon as upward impacts from inflation compensation fade. A recovery in productivity growth should support the moderation in labour cost pressures. Profit growth is set to weaken over the projection horizon and provide a buffer to the pass-through of labour costs. Overall, annual average headline HICP inflation is expected to decrease from 5.4% in 2023 to 2.3% in 2024, 2.0% in 2025 and 1.9% in 2026. Given the weak outlook for energy inflation, headline inflation is expected to remain below HICP inflation excluding energy and food throughout the projection horizon. Compared with the December 2023 projections, HICP inflation has been revised down for 2024 and 2025, mainly owing to the direct and indirect effects from lower assumptions for energy commodity prices and lower labour cost pressures, and is unrevised for 2026.

2 Real economy

Economic activity in the euro area stagnated in the fourth quarter of 2023, likely owing to small positive contributions from domestic demand and net exports being offset by continued destocking (Chart 1).^[2] Eurostat’s flash estimate of quarterly growth in the fourth quarter of 2023 was 0.0%, slightly below the figure of 0.1% entailed in the December 2023 projections. Euro area industrial production excluding construction was flat in the fourth quarter of 2023, with an increase in December suggesting a possible turnaround. In contrast, construction output and retail sales continued their downward trends and services production turned negative towards the end of last year. While exports continued to slightly underperform foreign demand, some estimated destocking, which likely continued at the end of 2023,^[3] translated into weak imports. Thus, the negative contribution from changes in inventories would have offset the slight increases in domestic demand and net trade.

Chart 1

Euro area real GDP growth

(quarter-on-quarter percentage changes, seasonally and working day-adjusted quarterly data)

Real GDP growth is expected to remain subdued in early 2024, amid waning tailwinds and tight financing conditions, before strengthening thereafter, supported by increasing household income, government consumption and foreign demand. The boost to activity from the post-pandemic reopening of the economy has faded, while the drag from tight financing conditions and elevated consumer uncertainty remains significant. Forward-looking survey indicators remained in contractionary territory on average in the first two months of 2024. Nevertheless, declining inflation and robust wage growth, in the context of a still tight labour market, should underpin households’ purchasing power in the first half of this year. Activity is therefore expected to be supported mainly by private consumption. Growth should pick up slightly further in the second half 2024, driven by rising private consumption, amid increases in real disposable income and an expected recovery in confidence. Government consumption is also projected to increase in the course of 2024, partly reflecting lagged inflation compensation in public sector wages, while exports should further catch-up with foreign demand. Over the medium term, real GDP growth is expected to strengthen further to rates marginally above the pre-pandemic average, supported by increasing real incomes, strengthening foreign demand and less drag from monetary and fiscal policies (Table 2). The withdrawal of fiscal support measures introduced since 2022 to compensate for high inflation and energy prices will have a small negative impact on growth in 2024-26, but the overall fiscal stance will be broadly neutral in 2025-26.

Financing conditions, especially high interest rates, are expected to continue to have a strong negative impact on growth, which will fade only gradually over the projection horizon. The impact of the monetary policy measures taken since December 2021 continues to feed through to the real economy, affecting the growth outlook, particularly for 2024.^[4] In addition, credit supply conditions have tightened significantly since the end of 2022, although the pace of the tightening has moderated recently as reported in the ECB’s latest euro area bank lending survey. The negative credit supply effects are assumed to affect mostly business and housing investment, and, to a lesser extent, private consumption. On the basis of market expectations regarding the future path of interest rates (Box 1), the negative impact of monetary policy and credit supply conditions on economic growth is expected to start gradually fading during 2024, although there is still considerable uncertainty surrounding the precise timing and magnitude of this impact. Therefore, part of the projected increase in GDP growth over the medium term relates to the fading of these dampening effects.

Compared with the December 2023 projections, real GDP growth has been revised down by 0.2 percentage points for 2024, it is unrevised for 2025 and has been revised up by 0.1 percentage points for 2026. The revisions for 2024 reflect the carry-over effects from recent weaker than expected data outturns for 2023 and a downward revision to quarterly GDP growth in the short term, as survey indicators remain subdued. The more negative than expected outturns, including for forward-looking indicators from business and household surveys, imply downward revisions to domestic demand, which are partly counterbalanced by small upward revisions to net trade. The reduced drag from financing conditions and lower commodity prices have led to small upward revisions to private consumption and to investment in 2026.

Turning to the components of real GDP, real private consumption is expected to be the main driver of economic growth, supported by robust real income growth and improving consumer confidence. Private consumption is estimated to have increased in the last quarter of 2023. Consumer spending is projected to strengthen gradually over the coming quarters, reflecting the decline in inflation and the continued overall resilience in the labour market. Moreover, declining uncertainty and improving consumer confidence are expected to provide additional support to private consumption, which should grow in 2025-26 at annual rates well above the pre-pandemic average. Private consumption growth has been revised down by 0.2 percentage points for 2024 compared with the December 2023 projections, mainly on account of weaker than expected dynamics in the first half of the year. It has been revised up marginally for 2026 in the context of expectations of a somewhat faster normalisation of households’ spending behaviour, which is reflected in a slightly more pronounced decline in the household saving ratio.

Real disposable income is estimated to have increased in 2023 and is projected to strengthen further over the coming years, reflecting falling inflation and robust wage growth, while savings are expected to remain elevated throughout the projection horizon. Real disposable income likely recovered in 2023, driven by strong labour and non-labour income growth and declining inflation. Non-labour income (for example, income from self-employment and from financial assets), together with strong wage growth, is expected to support households’ purchasing power in the near term. The saving ratio should remain elevated in 2024 reflecting still high uncertainty and strong incentives to save owing to high interest rates and tighter credit access, coupled with still rising non-labour income (given the high propensity of consumers to save this type of income). From 2025, as uncertainty and inflationary pressures recede and consumer spending behaviour gradually normalises, the household saving ratio should edge down. However, it is projected to remain above its pre-pandemic level throughout the projection horizon as higher interest rates counterbalance households’ desire to normalise their saving behaviour after the pandemic. The stock of accumulated savings is unlikely to provide support to consumption growth as it is concentrated among wealthy households and mostly held in the form of illiquid assets. High inflation rates in the past have also had a dampening effect on the real stock of savings.

Housing investment is projected to fall further in 2024, before recovering in 2025 and 2026 as tight financing conditions gradually ease and household incomes grow robustly. Housing investment likely fell again in the final quarter of 2023, following contractions in the previous two quarters. It is expected to continue its downward trend in 2024 owing to the considerable tightening of financing conditions in the past, including the sharp rise in mortgage interest rates and the tightening of bank lending standards. However, as financing conditions gradually improve, household income grows robustly and confidence recovers, housing investment is projected to pick up again from 2025 and grow at a faster pace in 2026.

Business investment is expected to remain weak in 2024 before gradually picking up in line with improving financing conditions, stronger demand and crowding-in effects from the Next Generation EU (NGEU) programme. Euro area business investment is estimated to have contracted sharply in the final quarter of 2023, falling far more than previously anticipated. This surprise reflects, first a faster than expected winding-down of order backlogs and firms’ internal financing buffers, which had previously countered the drag from tighter financing conditions, and second, delayed NGEU disbursements, which postponed potential crowding-in effects. Overall, euro area business investment is expected to contract in 2024 (in contrast to the modest growth anticipated in the December 2023 projections), but to increase in 2025 and 2026. This recovery over the medium term reflects the gradually diminishing drag from adverse financing conditions, as well as ongoing private sector efforts to enhance green and digital investments, together with strengthening domestic and foreign demand.

Euro area trade should improve, although remaining subdued by historical standards. Euro area real exports continued to retrench in the third quarter of 2023, but are estimated to have rebounded in the fourth quarter. They are expected to grow over the projection horizon broadly in line with developments in foreign demand. In this regard, the baseline projection does not include significant effects from the disruptions in the Red Sea which are expected to be short-lived (see Box 2 regarding the baseline, and Box 3 regarding a scenario of an escalation of the disruptions). Compared with the December 2023 projections, the export market share for the euro area is somewhat higher over the projection horizon; nevertheless, it is expected to remain well below pre-pandemic levels owing to the competitiveness challenges related to the past appreciation of the euro and to the past energy shocks. Imports surprised on the downside in the third quarter of 2023, and in the short term they are expected to grow more modestly than foreseen in the December 2023 projections, owing to weakness in the trade-intensive components of demand, such as investment. Thereafter, imports are projected to recover in line with the gradual recovery in domestic demand. Overall, net trade – which has been stronger than expected in recent data – is projected to remain somewhat higher in the short term; the contribution to GDP is projected to turn broadly neutral in 2024 and 2025, and to slightly support growth in 2026 (Chart 2). The terms of trade are projected to continue to improve in the short term, mostly as a result of lower import prices, reflecting the fall in energy prices. This translates into a higher current account balance, which from 2024 is projected to return to levels prevailing before the energy crisis.

Chart 2

Euro area real GDP – decomposition into the main expenditure components

(annual percentage changes, percentage point contributions)

The labour market remains resilient, although it is cooling somewhat as employment growth is expected to rebalance from the strong growth recorded in 2023. Broadly similar to the December 2023 projections, growth in total employment is expected to decline from 1.4% in 2023 to 0.5% in 2024 and to stabilise at 0.3% and 0.4% in 2025 and 2026 respectively (Chart 3). Labour productivity growth is expected to strengthen over the projection horizon, but productivity levels in 2026 are seen to remain significantly below the long-term linear trend. The unemployment rate is expected to show a slight hump-shaped profile: responding to weak economic activity with a lag, it is seen to increase to 6.7% in 2024 and to decrease thereafter to 6.6% in 2025 and 2026. The unemployment rate has been revised up by 0.1 percentage points for 2024 and 2025, and by 0.2 percentage points for 2026.

Chart 3

The euro area labour market

(percentage of labour force (left-hand scale), annual percentage changes (right-hand scale))

Box 3
Scenario analysis of a potential escalation of the disruptions in the Red Sea area

This scenario analyses the risks to the March 2024 baseline projections stemming from more protracted shipping disruptions in the Red Sea and the Gulf of Aden. Following repeated attacks by Houthi rebels on cargo vessels passing through the Bab-el-Mandeb Strait (i.e. the southern entry point to the Red Sea for vessels heading for the Suez Canal), transit volumes have dropped by about 70% since the beginning of December 2023 (Chart A, panel a).^[8] The March 2024 baseline projections assume shipping disruptions to be rather short-lived and their effects to be contained (Box 2). This box looks at a scenario of more severe and protracted disruptions until the end of the third quarter, with a de facto closure of the Suez Canal, while a gradual normalisation takes place in the fourth quarter of 2024. The scenario assumes that the conflict does not escalate to include major oil-producing countries (e.g. Iran), resulting, for example, in a partial closure of the Strait of Hormuz.^[9] The latter would have greater economic effects given that a significant volume of oil trade takes place via this route (about 20%).

The Red Sea disruptions observed so far can affect the global economy through higher shipping costs, increasing oil prices and lower trade, but as yet effects appear to be limited. About 12% of global crude oil shipments and 10% of all global seaborne trade by volume pass through the Suez Canal. Shipping disruptions can have multiple undesired effects. First, delays in oil shipments may lead to higher oil prices because of tighter global oil supply. However, after a short period of volatility, the Brent crude oil spot price has fallen and is currently below the level recorded after the first Houthi attacks.^[10] This is because oil tankers transiting the region are largely unaffected and only a few oil companies have suspended operations in the area (Chart A, panel b).^[11],[12] Second, global trade volumes and shipping costs are affected, since journeys between Asia and Europe are about 30% longer owing to shipping rerouting around the Cape of Good Hope, with rising demand for global container shipping capacity. As a result, higher transportation costs could feed into higher consumer prices. Since the start of the Houthi attacks, freight costs for shipping containers have indeed significantly increased along specific routes but remain well below the highs recorded in 2021 and 2022 (Chart A, panel c). Third, shipping delays could disrupt production via the reduced availability of raw materials and intermediate inputs, especially in industries relying on “just-in-time” supply chains. In January 2024 the Purchasing Managers’ Indices (PMIs) for suppliers’ delivery times rose for countries more exposed to the shipping disruptions, but remained significantly below their 2021 and 2022 levels (Chart A, panel d). Finally, while disruptions along critical maritime routes like the Red Sea might amplify uncertainty in global markets, the VIX Index, a proxy for financial market uncertainty, remains below the level registered on the day of the first Houthi attacks (Chart A, panel b).

Chart A

Developments in key indicators for shipping

a) Marine transit volumes	b) Oil price and financial market volatility
(indices; November, 2023 = 100)	(indices)
c) Shipping prices	d) PMI suppliers’ delivery times
(indices; 5 November 2023 = 100)	(diffusion indices)

Model-based estimates suggest that the repercussions from escalated shipping disruptions for global and euro area trade are likely to be contained. The effects of a scenario of more prolonged shipping disruptions on trade volumes are quantified using vector autoregressive (VAR) models for global and euro area trade. Shipping disruptions are proxied by the Federal Reserve Bank of New York’s Global Supply Chain Pressure Index (GSCPI), and we exploit the obstruction of the Suez Canal caused by the container ship “Ever Given” in 2021 to calibrate the supply chain disruptions associated with a blockade of this maritime gateway.^[13],[14] In this scenario, global trade growth would decrease by 1.1 percentage points in 2024 and by 0.5 percentage points in 2025 compared with the March 2024 projections baseline, with no impact in 2026 (Chart B, panel a). These effects reflect a higher usage of shipping capacity and a run-down of inventories in view of longer trade disruptions, but also a decline in trade in response to more persistent increases in shipping prices.^[15] The impact on euro area trade is larger. Compared with the baseline, euro area export growth would be 1.3 percentage points lower in 2024 and 0.8 percentage points lower in 2025. This reflects a relatively higher exposure of the euro area to disruptions in the Suez Canal, but also the relatively higher trade openness and global value chain integration of the euro area.

In the escalation scenario, euro area inflation would be around 0.25 percentage points above the baseline in both 2024 and 2025, but the impact would be smaller in 2026. ^The inflationary impact of higher shipping costs is contained as maritime trade costs make up only a small share of total input costs. In addition, a full pass-through of higher input prices to consumer prices appears unlikely, given the current relative weakness in demand and the ability of companies to absorb part of the higher costs in profit margins. Nevertheless, model-based estimates suggest that, in the escalation scenario, global inflation would increase by 0.15 percentage points in 2024 and by 0.20 percentage points in 2025 above the baseline. The slightly stronger impact in 2025 relates to the fact that changes in spot rates for shipping costs feed through to contractual rates with a lag, as the latter are negotiated periodically. Given the larger exposure of the euro area to the disruptions, euro area HICP inflation would register a more sizeable impact of around 0.25 percentage points (compared with the baseline) in both 2024 and 2025 (Chart B, panel b). The impact on euro area inflation in 2026 would be small as reopening effects would partially compensate the lagged pass-through of shipping costs to inflation.

Chart B

Impact on global and euro area trade and inflation under the escalation scenario

a) Trade flows	b) Consumer prices
(deviation from baseline growth rates, percentage points)	(deviation from baseline growth rates, percentage points)

3 Fiscal outlook

The euro area fiscal stance is projected to continue tightening in 2024, and to level off in later years (Table 3). The partial withdrawal of energy and inflation support measures is estimated to have resulted in a tightening of the fiscal stance (which is defined as the change in the cyclically adjusted primary balance^[16]) in 2023 and a more significant tightening is expected in 2024. In 2025, the fiscal stance is projected to tighten only slightly on account of a further scaling-down of the remaining energy support measures and increases in direct taxes and social security contributions, partly compensated by limited increases in government investment and consumption. The fiscal stance is projected to be neutral in 2026. Compared with the December 2023 projections, the euro area fiscal stance remains broadly unchanged, as (rather limited) revisions at the country level and between various fiscal instruments largely cancel each other out.

The euro area budget balance is set to improve over the projection horizon, but by less than was foreseen in the December 2023 projections, while the debt ratio is projected to follow a slight upward trend. The budget deficit is projected to decline in 2024 to 2.9% of GDP and to remain below the 3% reference value for the rest of the projection horizon. In 2026 the budget deficit is projected to be 0.8 percentage points below the 2022 figure. This is mainly due to a decrease in the cyclically adjusted primary deficit in 2023-25 which is seen to outweigh an increase in interest payments. Compared with the December 2023 projections, the somewhat higher deficit over the projection horizon stems from a deterioration in the cyclical component, which is partly compensated by downward revisions to interest payments that reflect more favourable financing conditions. The euro area debt-to-GDP ratio is estimated to have declined to 88.3% in 2023, but is projected to increase slightly by 2026, driven by primary deficits and expected positive deficit-debt adjustments, which are seen to be partly compensated by negative interest rate-growth differentials. After a favourable base effect from 2023, the debt-to-GDP ratio has been revised upwards over the projection horizon compared with the December 2023 projections, mostly on account of higher primary deficits.

4 Prices and costs

Headline HICP inflation is projected to significantly decline from 5.4% in 2023 to 2.3% in 2024 and then to fall further to 2.0% in 2025 and 1.9% in 2026 (Chart 4). Over the next few quarters, headline HICP inflation is expected to continue declining, though more gradually than before, exhibiting some volatility related to the base effects from the energy component and the timing of Easter this year.^[17] A base effect-driven rebound in the annual rate of change in the energy component during the course of 2024 (Chart 5) is expected to partly offset the further moderation in HICP inflation excluding energy and food (HICPX) and in food inflation. Thereafter, the gradual decline in headline HICP inflation mainly reflects further moderation in HICPX inflation, as food and energy inflation rates are seen to move broadly sideways (Chart 6).

Chart 4

Euro area HICP inflation

(annual percentage changes)

Chart 5

Cumulative impact of base effects from the energy component on headline HICP inflation from January 2024

(percentage points)

Energy inflation is projected to remain in negative territory for most of 2024, with some volatility related to base effects, before settling at rates close to zero in 2025 and early 2026, with renewed increases towards the end of the projection horizon. Following the drop in autumn 2023 energy inflation is expected to return to slightly positive territory by the end of 2024 owing to upward base effects, the unwinding of government energy compensation measures and the effects of the implementation of climate change measures in some countries. Between January and December 2024 upward base effects account for the expected swing in energy inflation, with the impact being partly offset by lower commodity prices. In addition, changes in energy and inflation compensatory fiscal measures from December 2023 are estimated to have an upward impact of 0.3 percentage points on headline inflation in 2024. This is marginally lower than expected in the December 2023 projections owing to changes in the timing and the extent of the reversal of these measures in some countries. Once the upward base effects and the impact from the withdrawal of energy-related fiscal measures fade, slightly downward-sloping energy commodity price futures curves, coupled with upward impacts from some climate transition fiscal measures, imply HICP energy inflation rates close to zero in 2025 and 2026.

Food inflation is expected to decline strongly from 10.9% in 2023 to an average of 3.2% in 2024 because of receding pipeline pressures emanating from earlier input cost surges, before settling at 2.3% in 2025 and 2026. After strong declines in the first quarter of 2024, the annual inflation rate for food prices is envisaged to moderate more gradually for the rest of the year, owing to easing pipeline pressures in view of the decreases in energy and food commodity prices. On the other hand, continued dynamic labour cost pressures are envisaged to prevent a stronger unwinding and their delayed impact will sustain food inflation in the last two years of the projection horizon.

Chart 6

Euro area HICP inflation – decomposition into the main components

(annual percentage changes, percentage points)

HICPX inflation is expected to continue declining as pipeline pressures fade, but at a more gradual pace than in the recent past as high labour cost pressures gradually feed through (Chart 7). HICPX inflation is expected to decline from 3.7% in the fourth quarter of 2023 to 2.5% in the fourth quarter of 2024 as the upward impacts from supply bottlenecks, post-pandemic reopening effects and indirect effects from past increases in energy and food prices fade, and as the downward impact from monetary policy tightening continues to feed through. The projections include negligible impacts from the Red Sea shipping disruptions on goods inflation, consistent with the assumption of a quick resolution of the tensions and the fact that shipping costs are often based on longer-term contracts.^[18] Thereafter, HICPX inflation is projected to average 2.1% and 2.0% in 2025 and 2026 respectively, reflecting fading impacts from earlier pipeline pressures and supply bottlenecks, the normalisation of demand after post-pandemic reopening effects, and the monetary policy tightening. A faster unwinding is seen to be hindered by declining but still elevated upward pressures from labour cost developments which are partially buffered by profit margins.

Chart 7

Euro area HICP inflation excluding energy and food

(annual percentage changes)

Compared with the December 2023 projections, the outlook for headline HICP inflation has been revised down by 0.4 percentage points for 2024 and 0.1 percentage points for 2025, and is unrevised for 2026, while HICPX inflation has been revised down over the entire projection horizon. The downward revision to HICP inflation in 2024 is mainly due to the energy component, which is expected to be lower owing to recent data surprises and lower energy commodity prices. Indirect effects from lower energy prices are expected to gradually feed through. This, together with the weaker growth outlook and lower growth in unit labour costs, leads to downward revisions to HICPX inflation over the projection horizon. Headline inflation in 2026 is unrevised as a result of upward revisions to energy inflation owing to the more upward-sloping oil and gas price futures curves, which offset the downward revisions to the food and HICPX inflation rates.

Nominal wage growth is projected to gradually decline, but to remain elevated, allowing for a catch-up of real wages to levels prevailing before the inflation surge, by 2025. Growth in compensation per employee is estimated to have declined in the fourth quarter of 2023 and is projected to continue moderating over the projection horizon, while remaining elevated compared with historical levels owing to still tight labour markets, inflation compensation and increases in minimum wages. At the end of the horizon it is seen to reach 3.0%, a rate broadly corresponding to the sum of projected productivity growth and inflation. Compared with the December 2023 projections, the growth rate for 2024 has been revised down slightly as lower wage drift owing to a weaker economic outlook is expected to more than offset stronger growth in negotiated wages. For 2025 and 2026, compensation per employee growth was also revised down, reflecting an expected earlier recovery in real wages and corresponding expectations of somewhat lower demand for inflation compensation. Growth in unit labour costs is expected to have peaked in 2023 and is projected to decline notably, benefiting in part from the projected rise in productivity growth (Chart 8).

Chart 8

Decomposition of euro area unit labour costs

(annual percentage changes; percentage points)

Domestic price pressures, as measured by the growth of the GDP deflator, are projected to continue to decrease gradually with profit growth first providing a buffer for high labour cost pressure and subsequently recovering (Chart 9). The annual growth rate of the GDP deflator peaked at 6.3% in the first quarter of 2023 and is projected to continue to recede quickly, averaging 2.9% in 2024 and declining more gradually thereafter to an average of 1.9% in 2026. Unit profit growth also peaked in early 2023 and has since slowed. It is expected to turn negative in 2024, implying that profits will buffer the relatively strong labour cost growth. As growth in unit labour costs moderates, unit profit growth is expected to recover somewhat from 2025, helped by a robust economic recovery and strengthening productivity growth.^[19]

Chart 9

Euro area GDP deflator – income side decomposition

(annual percentage changes, percentage points)

After a slightly negative annual rate in 2024, import price inflation is expected to hover somewhat above 2% in the later years of the horizon. Growth in the import deflator is expected to have dropped sharply from 17.5% in 2022 to -3.0% and -0.4% in 2023 and 2024 respectively. It is expected to turn positive in the second half of 2024 and to stand at 2.4% in 2025 and 2.2% in 2026, broadly in line with the projected path for export competitors’ prices (Box 2).