The world economy [January 2001]

Since the publication of our last Commentary in October 2000 the prospects for the world economy have weakened considerably. The principal development has been the rapid turnaround in the US economy. As recently as mid-November last year the consensus view was that real growth in the US in 2001 would slow to about 3.5%, roughly consistent with stable inflation. Higher oil prices and a general tightening of monetary policy were expected to lead to a more general slowing of the world economy, although most forecasters thought it unlikely that that by themselves these two factors will lead to a major global recession.