The international environment

• Overall, the outlook for the world economy has improved since the previous Quarterly Bulletin.
• Most short and long-term interest rates increased across the major international financial markets, partly reflecting developments in the United States.
• The Federal Open Market Committee increased the federal funds target rate by 1/4% to 5% on 30 June, and reverted to a neutral monetary stance. Growth slowed somewhat in the second quarter, after above-trend growth in the first quarter.
• Growth in the euro area appeared to have strengthened in the first quarter, after slowing throughout last year. Euro-area inflation remained at low levels, and the European Central Bank left interest rates unchanged, though noted some potential for upward pressure on prices in the future.
• In Japan, measured GDP grew by 1.9% in the first quarter of 1999, after six quarters of falling output. This increase may reflect one-off factors, and the impact of the recent fiscal stimulus.
• Oil prices increased by more than 15% since the previous Quarterly Bulletin, but indices of other commodity prices were broadly flat in dollar terms.
• In most emerging markets, output growth has been stronger than expected, and forecasts for growth were revised up.

The international environment