The international environment

• This article discusses developments in the international environment since the May 2000 Quarterly Bulletin, as well as the outlook for inflation and output over the next two years.
  
  
• World GDP is estimated to have grown by 1.4% in the first quarter, an acceleration from 1.1% in the last quarter of 1999. But world industrial production growth has slowed since February 2000; growth rates have remained stable and high in the major economies, but, although still high, have fallen somewhat in the emerging market economies since the beginning of the year.
  
  
• In the United States, GDP grew strongly in Q1 and Q2, albeit at a slower pace than in the preceding quarters. In the euro area, GDP growth was faster in Q1 than in the final quarter of 1999 and growth strengthened in Germany and Italy. The Japanese economy grew at a quarterly rate of 2.4% in the first quarter, after a fall in measured output in the previous quarter.
  
  
• Oil price volatility has been high, reflecting uncertainties about the future balance of demand and supply. There have been signs of a renewed pick-up in producer and consumer price inflation in response to the oil price increases from mid-April to June.
  
  
• Official interest rates in the United States and the euro area have increased further since the previous Quarterly Bulletin. Both the FOMC and the ECB raised their rates by 0.5 percentage points, to 6.5% and 4.25% respectively. The Bank of Japan has maintained the zero interest rate policy implemented in February 1999.
  
  
• Projections by external forecasters are for world GDP growth to rise by around 4.5% in 2000, the highest growth rate for a decade, and by approximately 4% in 2001. Since the previous Quarterly Bulletin, there have been upward revisions to forecasts for GDP growth in the United States and the euro area, while for some emerging market economies, especially in South East Asia, forecasts have been scaled down slightly. The balance of risks around most forecasts is little changed from three months ago, typically indicating a balance of risks on the downside, primarily for reasons linked to the possibility of asset markets falling.

The international environment