To begin with, we will look at some of the international developments with regard to our key trading partners. The USA, the UK and the euro area account for approximately two thirds of Irish exports, and performance has been relatively mixed in the year to date in respect of these trading partners. I will begin with the USA. The economy contracted in the first quarter of 2014, which was mainly on account of temporary factors, including bad weather. Since then, it has rebounded, and it grew by 1.1% in the second quarter of this year. However, it is not expected that the contraction in the first quarter will be made up throughout the remainder of the year. On that basis, forecasts for the USA for 2014 have been revised down somewhat, but remain as we expected at the time of our stability programme update for 2015 in April.
Moving to the UK, economic growth remains robust, largely driven by private consumption, a pick-up in investment and an overall positive contribution from net exports. In quarter 2, growth increased by 0.9%, and high-frequency indicators also indicate healthy growth here. On that basis, forecasts for the UK have been revised upwards for this year and slightly upwards for next year.
The euro area presents a slightly different story. It might look as though we are missing a value at the end of the chart on the slide, but in fact growth was flat in quarter 2 of 2014. This situation was driven by developments in the three largest member states. There was a contraction in Germany and in Italy in the second quarter, while France had zero growth. Some of the risks we highlighted in April have materialised in terms of geopolitical tensions and a lower rate of growth of inflation in the euro area. On that basis, the forecast has been revised downwards for the euro area. The forecasts we have used to feed into our own budget 2015 forecast are those of the OECD which were published last month. These forecasts are in line with the IMF World Economic Outlook forecasts which were published earlier this afternoon.
To move on to developments with regard to inflation, the harmonised index of consumer prices, or HICP, is the comparable measure of consumer prices across member states. The chart on the slide compares the annual rate of inflation in Ireland with the euro area. The annual rate of HICP inflation in the euro area was 0.3% in September, representing the twelfth month in a row for which the annual rate of inflation was under 1%. While some of this may be attributable to temporary factors such as reductions in oil prices, the weak economic recovery is also clearly a factor which is dampening price dynamics. While low inflation may serve to protect real incomes, if actual inflation persistently undershoots expected inflation, it can be problematic for two reasons. First, in terms of aggregate demand, if individuals in households and companies expect that they will get better value in future, they will hold off on personal consumption and investment. Second, it pushes up the real interest rate, which increases the real debt burden. Another point to highlight in relation to the chart is that since July the annual HICP inflation rate in Ireland has gone above the euro area average, although it remains far below the rates in our other key trading partners, the USA and the UK.
In the next slide, I take the Irish HICP inflation and break it down in more detail. The black dotted line is the same line that was on the previous chart. In this chart, we strip out the more volatile elements of inflation, including energy and unprocessed food, and are left with core inflation, which we generally tend to focus on as it provides us with a better picture of the underlying price dynamics in the economy. When one strips out the more volatile elements, the rate of inflation was 1% in August, which was mainly driven by services, particularly private rents and licensed premises. Goods continue to act as a drag on inflation, mainly due to falls in the price of clothes and non-energy industrial goods. My colleague Mr. Enright will take the committee through the real economy.