The slowdown in economic activity that was already evident at the time of the previous Economic Survey of Poland has  since intensified. GDP grew only 1 per cent in 2001, and unemployment reached about 19 per cent of the labour force. Since then the weakness of demand has persisted, with output expanding 0.5 per cent in the first quarter of 2002. In this environment, inflation fell to less than 4 per cent in 2001, and, as of May 2002, was 2 per cent. The driving force behind the slowdown has been a sharp fall in investment activity – in response to very high interest rates following the slowdown in European demand and the pick up in inflation in 2000. In contrast, and despite a 3.5 per cent fall in employment, strong real wage growth and large World War II related transfers have allowed private consumption to increase. Overall, the weakening of demand closed the large positive output gap that had opened up following the fast growth of the 1990s and resulted in a substantial negative one by mid-2002. This helped to quell the inflationary pressures that emerged in 2000 and was reflected in the narrowing of the current account deficit to a still high 4 per cent of GDP.