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THE GLOBAL ECONOMY IN 2004

THE GLOBAL ECONOMY IN 2004. HOW ROBUST IS THE GROWTH?. LAST YEAR. INFLATION?. DEFLATION?. THE BIG DEBATE. INFLATION OR DEFLATION? A SUSTAINED RISE OR FALL IN THE OVERALL PRICE LEVEL. NOW. THE WORLD ECONOMY IS RECOVERING , AND THE TALK AMONG ECONOMISTS IS NOW MUCH MORE ABOUT INFLATION.

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THE GLOBAL ECONOMY IN 2004

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  1. THE GLOBAL ECONOMY IN 2004 HOW ROBUST IS THE GROWTH?

  2. LAST YEAR.....

  3. INFLATION? DEFLATION?

  4. THE BIG DEBATE • INFLATION OR DEFLATION? • A SUSTAINED RISE OR FALL IN THE OVERALL PRICE LEVEL

  5. NOW..........

  6. THE WORLD ECONOMY IS RECOVERING, AND THE TALK AMONG ECONOMISTS IS NOW MUCH MORE ABOUT INFLATION

  7. THE ECONOMIC AIM: A SAFE MIDDLE COURSE

  8. WORLD GDP GROWTH 2003 AND 2004 STRONGER!

  9. JAPAN PUTS OUT THE FLAG • After more than a decade of stagnation, Japan looks as though it has turned the corner. • At last Japan has become more “normal”!

  10. What is now driving the recovery? • Very low interest rates • Continued expansionary fiscal policy • Recovery in company finances • Buoyant consumer demand • Some stock market recovery

  11. GLOBAL SHORT TERM INTEREST RATES Source: IMF

  12. BUDGET DEFICITS COMPARED 2004 (est)

  13. BUT.........

  14. OIL PRICE

  15. TWO MORE PROBLEMS:

  16. No.1

  17. No.2 PRODUCER PRICES 2003/4 Source: Economist

  18. THE MAIN ECONOMIES RIGHT NOW • STRONG GROWTH EVERYWHERE EXCEPT EURO AREA • ENERGY PRICES • BEGINNINGS OF INFLATION??? • MAJOR IMBALANCES WITH USA

  19. What about Britain?

  20. DESPITE:

  21. NOW ON THE WAY UP….

  22. ALTHOUGH, INFLATION STILL OK

  23. TWO LURKING PROBLEMS:

  24. 1: HOUSE PRICES IN BRITAIN • Are they “too high”? • Is there a “bubble”? • Will they fall? • What will happen if they do?

  25. BUBBLES • STOCK MARKETS AND LAND PRICES GO UP FAR TOO MUCH • BUBBLES!! • WHEN THEY BURST ECONOMIES SUFFER

  26. OEF central forecast No monetary response Wealth & confidence effects with monetary response Wealth effects Wealth & confidence GDP growth 2004 2005 2006 3.1 2.8 2.3 3.1 2.2 1.6 3.0 1.2 0.7 3.0 1.9 2.4 CPIX inflation 2004Q4 2005Q4 2006Q4 1.5 1.7 1.7 1.5 1.5 1.0 1.5 1.1 0.6 1.5 1.3 0.8 Interest rates 2004Q4 2005Q4 2006Q4 5.0 5.0 4.5 5.0 5.0 4.5 5.0 5.0 4.5 4.7 3.6 3.3 Impact of 10% house price fall LOOK AT THE RED NUMBERS Source: Oxford Economic Forecasting

  27. 2: HUGE CONSUMER DEBTS! Total UK, May 2004: £993 BILLION

  28. In the world: Little danger of deflation Growth generally healthy Main threats from energy prices and politics In Britain: Still strongest growth in Europe, BUT Highest interest rates in Western Europe Main threats political and from a housing asset price bubble SO, WHAT NOW?

  29. THAT'S IT FOR NOW. THANK YOU FOR LISTENING!!

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