importing emerging countries. we had drawn attention to the danger of not taking advantage of the opportunity offered by the improvement in economic conditions to press ahead, in italy and in europe, with structural reforms so as to transform the cyclical recovery into a new phase of sustained growth. recent economic developments in the united states economic activity accelerated in the second half of 1999 ; the expansion continued in the first half of 2000 at a pace well in excess of the economy's potential growth rate. inflation picked up significantly. the tightening of monetary conditions begun in june 1999 was intensified during 2000. the federal funds target rate was raised by 1. 75 percentage points between the middle of 1999 and the middle of 2000. as in the other industrial countries, economic activity slackened in the second half of 2000. in the first half the economy's growth rate was nearly 6 per cent ; in the third quarter it fell to 2. 2 per cent. the rate of expansion in private investment has fallen from 13 per cent in the first half of last year to 3 per cent. for the first time since the end of 1998 pre - tax corporate earnings have declined. in the last quarter of 2000 there was a further slowdown in economic growth : gdp growth on an annual basis dropped to 1. 4 per cent, reflecting the slowdown in consumption and a contraction of nearly 2 per cent in investment. the economic recovery in japan, which had been fueled in part by the expansion of public expenditure, proved uncertain. the positive performance of private investment, which expanded by 4. 5 per cent in the first nine months of 2000 after contracting in 1999, contrasted with stagnant consumption. in the third quarter net foreign demand's contribution to growth turned negative as a consequence of the sharp slowdown in exports ; sales of capital goods to emerging markets in the region contracted. there continue to be deflationary pressures on both consumer and producer prices. in the other asian countries, and especially those most dependent on the international cycle, the rate of growth declined in the second half of 2000, although it remained relatively high. in latin america the economies of the countries with the closest trade links with the united states performed well. output in mexico increased by 7 per cent in 2000, as against 3. 7 per cent in 1999. brazil recorded an increase of 4 per cent last year, up from 0. 8 per cent the year before. in argentina, by contrast, the economic situation deteriorated last summer ; the appreciation of the dollar, to

competition in domestic and international markets. advanced methods are required to manage the risks inherent in organizations which have become more complex and are operating in more open and unstable markets. recent studies conducted under the aegis of the finance ministers and central bank governors of the group of ten indicate that a further increase in the size of intermediaries as a result of mergers and acquisitions would not necessarily enhance stability. moreover, in domestic markets concentrations involving large banks may pose problems for competition, with adverse repercussions especially for individuals and small businesses. in the united states rapid economic growth, the development of the capital markets and extensive activity in foreign markets providing high returns have enabled banks to make substantial profits in recent years. lending to all categories of borrowers has increased rapidly. bankers appear to have shared the optimism prevailing in equity markets, leading in some cases to not entirely realistic estimates of customers'creditworthiness. corporate indebtedness, the level of share prices and the sizable exposure to emerging countries may aggravate the difficulties of the economy. banks have adopted more prudent credit policies in parallel with the slowdown in the united states and the international economy. the federal reserve's recent survey of leading banks has revealed a larger - than - expected deterioration in credit quality. the more selective approach to lending primarily concerns medium - sized and large firms and finance for mergers and acquisitions. the banks reported that they were also being more cautious in granting lines of credit to new customers. the fall in the prices of shares in high - tech. sectors has dried up a major source of fee income for intermediaries. the economic slowdown has also had repercussions on the bond market. the risk premium for bonds issued by firms with a high credit rating widened by about one percentage point in 2000 to 1. 3 points ; that for bonds with a low rating nearly doubled to 4. 3 points. the premiums have narrowed following the reduction in official rates in january. within the euro area, private enterprises intensified their borrowings on the international capital market in 2000. corporate bond issues exceeded 350 billion euros ; syndicated loans to the private sector increased to 230 billion euros. recourse to the market was led by telecommunications companies. the growth of the bond market was accompanied by an appreciable widening of yield spreads with respect to government securities. for bonds issued by telecommunications companies, the risk premium had risen to 164 basis points at the end of 2000. in the asian emerging countries, where technology companies account