- GDP growth in the first quarter was quite strong at first sight; in the major six (M6) international economies, output was 1% more than in the last quarter of 1995. But much of that reflected special factors, particularly in Japan, France and Italy, that are likely to have unwound in the second quarter. The strength of the US economy appeared more robust. And domestic demand in Germany was stronger than the markets expected. In Europe, cyclical conditions improved, but structural problems remained.
- Consumer price inflation remained subdued. In the United States, however, there were some signs of emerging price pressures earlier in the production chain, and labour market conditions continued to tighten.
- At the time of going to press, there were no changes in official interest rates in the G3 countries, following the Bundesbank’s 1/2 point cut in mid April. Several other European countries, however, including France and the United Kingdom, trimmed interest rates in June. Yield curves steepened at the short end, reflecting market expectations of interest rate rises ahead, notably in the United States but also in Germany and France.
Two special topics are considered: consumer indebtedness in the United States; and the extent to which eastern Germany has converged with western Germany.
The international environment