The World Economy
¥ The global upturn remains intact despite a slowdown in the Chinese economy, now forecast to grow by 7.3 per cent in 2004. ¥ The Japanese recovery is proving stronger than expected: GDP will grow by 3.6 per cent this year. ¥ The American economy will grow by 4.3 per cent in 2004, but strong growth is leading to a revival of inflation. ¥ The Euro Area will grow by 1.8 per cent in 2004 and by 2.3 per cent in 2005. The world continues to enjoy a marked economic upswing. A recovery in private investment is fuelling the strongest growth since 2000. Global GDP will grow by 4.2 per cent this year and by 4.1 per cent in 2005. World trade will grow by nearly 9 per cent in 2004 and by 10 per cent in 2005. We have revised down our forecast for China's GDP growth in 2004 from 8.4 per cent to 7.3 per cent, but Japan is now expected to grow faster both this year and next. Asia remains a key force in the global recovery, contributing nearly 40 per cent of world trade growth and 45 per cent of global GDP growth in 2004. The outlook for the Japanese economy has improved markedly. GDP rose by 5.0 per cent in the year to the first quarter, the highest growth since the bubble years. The economy is now forecast to grow by 3.6 per cent in 2004 and by 2.6 per cent in 2005, revised up from our previous forecasts of 2.5 and 2.1 per cent respectively. Business investment will rise by almost 10 per cent this year. Deflation is now ceasing and the private consumption deflator will rise by 0.6 per cent in 2005. The American economy will grow by 4.3 per cent this year and by 3.3 per cent in 2005. The strength of the recovery closed the output gap in the first quarter of 2004. The removal of excess capacity and the depreciation of the dollar are contributing to a rise in inflation, while rising oil prices also have a stronger impact on inflation in the US than elsewhere. The private consumption deflator will increase from 1.8 per cent in 2003 to 2.4 per cent this year. The American budget deficit will amount to 5.4 per cent of GDP this year and 4.9 per cent in 2005. The Euro Area will grow by a modest 1.8 per cent in 2004. Recovery is being held back by sluggish recovery in Germany and Italy, which will grow by 1.4 and 1.2 per cent respectively. The unemployment rate in the single-currency zone will be almost 9 per cent both this year and next. Consumer price inflation will fall from 2.2 per cent in 2004 to 1.8 per cent in 2005. France, Germany and Italy will continue to run big budget deficits. The French deficit will remain 4.1 per cent of GDP in 2004 and 2005. Germany will run a deficit of 3.6 per cent of GDP this year and 3.2 per cent in 2005. Italy's budget deficit will be 2.8 per cent of GDP in 2004 and 3.2 per cent next year.
Year of publication: |
2004-06
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Authors: | Holland, Dawn ; Barrell, Ray ; Choy, Amanda |
Institutions: | National Institute of Economic and Social Research |
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