Recent information from the United States and Japan has broadly conformed with our expectations, but it now looks as though Western European economies were rather more depressed in the latter part of last year than we supposed in November. For OECD countries the aggregate rise in output in 1977 may have been rather nearer to 3 1/2 than to 4 per cent and it now seems doubtful whether it will reach 4 per cent this year or next despite the stimulatory measures adopted or in prospect in most major countries. The trend of unemployment has, however, been more favourable than we had expected, and inflation in most developed countries has continued to slow down. For consumer prices the increase over the whole OECD area last year was around 9 per cent and we expect it to come down to about 7 1/2 per cent this year. Whether the deceleration will continue in 1979 is, however, more doubtful. It has so far owed a good deal to a substantial improvement in productivity early in 1977, when output was increasing rapidly, and then to a sharp fall in commodity prices. Special measures to reduce unemployment are militating against continuing productivity gains, and we expect much of the reduction in commodity prices to be reversed as demand recovers during the next two years, though for 1978 as a whole they may be 5–6 per cent lower in SDRs (if petroleum is excluded) than they were in 1977.