Chapter II. the World Economy

Abstract

In the 'overall outlook' section we explain why we think the world economy is not heading for recession. The short-term forecast is then presented in detail in sections covering the six major economies, commodity prices and trade. We then have three special sections. The first looks at our model's view of what recent history and current prospects would have been like if oil prices had not fallen last year. A second section considers the prospects for US inflation using econometric evidence in the form of wage and price equations. We focus particularly on the impact of higher import prices following the fall in the dollar. Finaily we present a model simulation in which US policy becomes much more restrictive than in our central forecast because of inflationary fears.