Favourable economic outlook

Global economic growth appears to have peaked during the first half of 2000, but world economic prospects remain relatively bright, despite a weakening in many equity markets. After reaching 4.25% this year - the fastest pace in more than a decade - OECD-- wide output growth is projected to slow to

about 3.25% in 2001 and 3% in 2002. Core inflation is likely to remain low in most OECD countries, against a background of modest tightening in monetary policy in the United States and in the euro area. OECD unemployment may remain close to its present level, at about 6% of the labour force. After a sharp rebound in activity outside the OECD area, world output may rise by some 4.75% this year, before slowing in 2002.

This broadly favourable outlook assumes that world oil prices will ease back from their recent high levels. The low stock situation, and the prospect of continuing political tensions in the Middle East, point to an unusually volatile market. This is not a crisis of the same dimension as the oil shocks in the 1970s, but the situation may change if oil prices continue to rise.