The main news since the previous Quarterly Bulletin is:
- Activity in the United Kingdom’s major export markets has firmed a little since the start of the year, but big differences remain among the major economies.
- Activity in Germany, France and Italy was very weak around the year end. There were some signs of a moderate improvement by March, largely in the export sector. Domestic demand remained weak. Activity has been more buoyant in many of the smaller EU countries.
- The recovery in Japan continues to be uneven, with large manufacturing companies faring better than non-manufacturing and smaller companies.
- In the United States, the Federal Reserve Board raised the target federal funds rate by 25 basis points in March, as the US economy continued to grow strongly in the first quarter of 1997.
- Interest rates were also increased in the Netherlands in February and March, but were cut in Portugal and Spain. Interest rates remained unchanged in Germany and Japan.
- Inflation remained low in the United States, despite a pick-up in earnings growth. Considerable spare capacity remains in the labour markets in Japan and continental Europe; wage pressures have been subdued. Within the European Union, inflation rates continue to converge; new harmonised measures of consumer prices were published for the first time in February.
- Long-term bond yields in the G7 fell at the start of 1997 but rose sharply towards the end of the first quarter, except in Japan where they continued to fall.
- The US dollar, sterling and the Canadian dollar appreciated on an effective basis during the first quarter of 1997 (up 5.6%, 3.2% and 1% respectively); the yen, lira, Deutsche Mark and French franc depreciated over the same period (by 3.3%, 2.8% , 1.5% and 1% respectively).
The international environment