For the second consecutive year, world growth was very strong in 2004. Following the collapse of the Iraqi regime, world trade, especially with Asia, posted a sharp increase, while growth picked up throughout the world. However, there were contrasts between individual zones in the upturn in activity, which was strong in the United States, Japan and the United Kingdom but tenuous in the euro zone. In the euro zone, the upturn was moderate. The appreciation of the euro's effective exchange rate continued to affect sectors exposed to foreign competition. Domestic demand picked up but unevenly between countries, with household behaviour remaining very cautious in several countries, notably Germany and Italy. In the case of France, it was private domestic demand, especially from households, that underpinned the recovery.