next year. it may be lower than that in view of the uncertainties stemming from international political tensions and the rise in oil prices, although this appears to have run its course. in the united states output is expected to grow by 3 to 4 per cent, in line with its potential ; in asia growth should be between 6 and 7 per cent, and in japan, between 2 and 2. 5 per cent. the rapid expansion in world trade is expected to continue, although not as fast as this year. the euro - area economy will continue to grow in the last part of the year and in 2005. in view of recent trends, the expansion of the italian economy appears uncertain. industrial production has not yet shown any sign of recovery. preliminary estimates indicate that in october the level was no higher than at the end of 2003. gross domestic product rose by 0. 5 per cent in the first quarter and 0. 3 per cent in the second ; the increase is expected to remain about the same in the third quarter. for the year as a whole the estimated increase is 1. 2 per cent, which is well below the average for the other european countries. household consumption is increasing in line with gdp. the sharp upturn in world trade concerns italy ’ s exports as well ; if the recovery observed in the second quarter continues, they may increase by as much as 5 per cent in volume in 2004. after falling sharply in 2003, investment is showing signs of recovery. according to a survey conducted by the bank of italy ’ s branches between 17 september and 7 october on 4, 157 firms, including 3, 094 in industry excluding construction and 1, 063 providing non - financial services, capital spending in 2004 will be only slightly below the amount initially planned ; the recovery in investment is expected to continue in 2005, both in the service sector and in industry. in the first nine months of the year, the majority of firms saw their turnover increase in nominal terms with respect to the year - earlier period ; during the third quarter orders showed some improvement with respect to june ; a large percentage of firms in industry and services expect demand to pick up further in the next six months. in view of the favourable performance of international trade, it is expected that output will be sustained by exports. poor competitiveness on the domestic market will entail a sharp rise in imports ; gdp growth will be faster than this year ; however, on the basis of current trends, it will amount to less than 2 per cent

. estimates made with the bank of italy ’ s econometric model indicate that investment in machinery, equipment, and means of transport could expand by 3 to 4 per cent in real terms. 5. economic policy the twelve - month inflation rate fell to 2 per cent in october, according to preliminary data. on a seasonally adjusted basis, the consumer price index registered a slight decrease with respect to september. this is a development whose interpretation is multifaceted. undoubtedly, the weakness of demand played a part in the decrease. after the criticisms and discussion of the behaviour of the distributive trades on the occasion of the changeover to the euro, the sector needs to regain consumers ’ confidence. a broadly shared determination to act in this direction can bring benefits for the level of economic activity and for the distributive sector itself. in a cyclical phase that remains uncertain but is showing signs of improving, it is crucial to launch policies designed to create the conditions for faster economic growth. it is indispensable to proceed with the adjustment of the public finances. curbing the rate of growth of current expenditure is part of this strategy ; the recoupment of tax bases is necessary in order to reduce the benefits accruing to tax evasion and avoidance. there is ample scope for increasing the efficiency of the public sector. major advantages can come from further administrative simplification and a drastic reduction in authorization procedures. structural measures can contain the rise in expenditure on health care, without affecting the quality and availability of services. in the medium term, the size and certainty of the expenditure savings connected with the changes in the pension system will have to be verified in depth. the process of decentralization of government powers must necessarily involve a transfer of personnel and administrative units. in a context of deficient infrastructural endowment, even in such essential services such as transport, water supply and the provision of energy at moderate costs, spending on public works in 2004 remained at the previous year ’ s levels in real terms. extraordinary measures and adequate financing can accelerate the transition from the phase of decision - making to that of project execution. arrangements to prevent or resolve conflicts of authority, together with innovative mechanisms of cooperation with the banking system, can help to get the projects effectively under way. private enterprise can take on an important share of the cost of the investments, when these regard the provision of services remunerated by user charges. the intensification of activity in this sector