When we last reported in November, it seemed that the major problem confronting the world economy (so far as oil was concerned) might be the physical availability of supplies—in other words that world industrial output would be constrained by supply rather than demand shortages. Since then, however, the posted price of crude oil (against which the host governments' ‘take’ is calculated) has been roughly doubled on top of the increases imposed last October, and this now makes it likely that the ‘real’ deflationary impact of the price rise will soon outweigh the effects of supply shortages. And, as many countries will be affected in this way, there are likely to be ‘second-round’ contractionary effects on world trade. The international financial problem and the serious plight of the non-oil-producing developing countries have also been thrown into greater relief by the latest price rise. The sheer size of the latest price rise may also lead to a significant ‘price elasticity’ effect on oil consumption regardless of any rationing or other direct controls.

The period of very rapid growth in the industrial world which had begun towards the middle of 1972 was over within a year. Between the first quarters of 1972 and 1973 the aggregate output of the OECD countries increased by about 7½ per cent. Since then, however, the rate of growth has probably been halved.

The development of the economy in the three months since we last reported has been weaker than we had been expecting. In particular, consumer spending has slowed sharply, while exports in real terms appear to have stopped rising and may even have fallen.