Among the main developments:
- Signs of further progress in adjustment of the external imbalances of the major economies have been mixed. The US current account deficit narrowed further in the third quarter, but latest monthly data suggest it may have widened again in the fourth: and, although Germany's current account surplus fell back in the third quarter from its high second quarter level, Japan's surplus widened, and may have strengthened further in the fourth quarter.
- Activity in the international capital markets declined in the fourth quarter, reflecting lower issuance of equity-related bonds and a fall in announcements of new euronote programmes. For the year as a whole, however, there was a record level of activity (totalling over $400 billion). Rapid growth of world output and investment, together with industrial restructuring, were key factors underlying borrowing activity during the year.
- In the foreign exchange market, the US dollar fell back in the fourth quarter, with sentiment affected by disappointing economic indicators and doubts about the prospect for action to reduce the US trade and fiscal deficits; and despite strengthening in December, the dollar fell by over 5% in effective terms over the quarter.