The most important changes in the world economy since our last forecasts were prepared at the beginning of the year have been the rise in the price of oil and the associated rises in the pound and dollar against other currencies and particularly against the yen.

Despite these developments we have not significantly changed our forecasts of total OECD output in 1979. This is partly because we seem to have underestimated in February the strength of the upward trend in the industrial sector especially in North America. But we do expect higher rates of inflation, partly as a result of the oil price rise, both this year and next, and in 1980 rates of output are likely to slow down rather more than we thought in February. This is partly because of the transfer of purchasing power from oil importers to oil exporters, who will spend only part of it on additional imports, and partly because governments in oil-importing countries must be expected, as in 1974–75, to compound the depressing effects by their policy reactions to faster inflation and higher import bills.