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Chapter II. The World Economy

Published online by Cambridge University Press:  26 March 2020

Extract

The start of hostilities in the Gulf in January appears to have removed some of the uncertainties surrounding the oil market, and oil prices have dropped to around 20 dollars per barrel. This development should help sustain growth and reduce inflation over the next two years. Box A sets out some calculations of the effects of the change in our oil price assumptions on our forecast. The appreciation of the D-Mark bloc and the emergence of a recession in the US driven by a wave of bank failures has persuaded us to be less optimistic then we were in our last forecast. Table 1 summarises the outlook. We are forecasting a slowdown in the rate of growth in the major economies in 1991, with some recovery in 1992 and thereafter. The slowdown has already taken place in the US, the UK and Canada, whereas in 1990 Japanese and German growth was at historically high levels. Chart 1 plots levels of capacity utilisation in the major economies. Only in the US has output clearly fallen below capacity, but record levels of utilisation in Japan, Germany and France inevitably imply some slowdown in growth from recent levels.

Type
Articles
Copyright
Copyright © 1991 National Institute of Economic and Social Research

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Footnotes

We would like to thank Andrew Britton, Andrew Blake, Nigel Pain, Peter Westaway and Garry Young for their comments on this chapter. We have also benefitted from the statistical support given by Helen Finnegan and Valerie Lozachmeur.

References

Notes

(1) See for instance, the average growth grate for the US in Victor Zarnowitz's summary in Economic Forecasts. July 1990. North Holland.

(2) Such observer/observed interactions are common in the social world. Karl Popper calls them an Oedipus effect. However we would not wish to claim too much for the Cassandras' of the forecasting world.

(3) See the discussion of the US budget in The Financial Times on Tuesday 5th February 1991.