The international environment

Published on 01 December 2000

This article discusses developments in the international environment since the August 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 1.0% in the second quarter, a deceleration from 1.5% in the first quarter. Growth rates remained strong in the major economies, but fell in the emerging Asian economies. World industrial production growth has continued to rise.
In the United States, GDP grew strongly in Q2 but slowed in Q3; final domestic demand growth moderated in both quarters. In the euro area, quarterly GDP growth in Q2 remained at 0.9% for the fourth consecutive quarter. The Japanese economy grew by 1.0% in Q2, the second consecutive quarter of positive growth.
Oil prices have risen further, amid uncertainties about the future balance of demand and supply. Consumer price inflation rates have reflected this to a varying degree. Headline inflation has risen in the euro area but has fallen in the United States over the period. Non-energy inflation rates have risen in both economies, notably in the euro area.
Official interest rates have risen in Japan and the euro area since the previous Quarterly Bulletin. The Bank of Japan ended its zero interest rate policy by raising rates to 0.25%, and the ECB increased rates in two steps, by 0.5 percentage points in total, to 4.75%. The FOMC has maintained the Federal funds target rate at 6.5%.
The IMF has raised its projection of world GDP growth to 4.7% in 2000, the highest growth rate in more than ten years, and to 4.2% in 2001. These revisions reflect continued robust growth in the major economies, and a strengthening of economic fundamentals in many emerging markets. Since the previous Quarterly Bulletin, projections published by Consensus Economics for GDP growth in most regions have been revised upwards for 2000, though are mixed for 2001, perhaps partly reflecting the expected effects of higher oil prices. World trade is forecast by the IMF to grow by 10% in 2000, slowing to around 8% in 2001. The balance of risks around most forecasts remains on the downside, largely from the effects of a possible fall in asset market prices and from the uncertain impact on activity of higher oil prices.