World in Motion: The Organisation for Economic Co-Operation and Development and the International Monetary Fund Are Both Bullish about the Prospects for Growth. David Ross Reviews Their Latest Forecasts

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Halfway through the year is an appropriate time to review the forecasts provided for the major economies by the the Organisation for Economic Co-operation and Development (OECD) and the International Monetary Fund (IMF).

The recent surge in oil prices occurred after both agencies published their predictions. This increase, along with the threat of terrorism that was partly responsible for the rise, would now cloud some of the judgments that they made. The IMF reckons that, for every $5-per-barrel increase above baseline that stays in place for a whole year, global growth decreases by 0.3 per cent. Saudi Arabia's decision to step up oil production and signs that the Chinese authorities may take measures, albeit modest ones, to cool their overheating economy suggest that oil prices need not remain at their current levels for so long as to affect the forecasts materially.

The IMF considers that the world economy is "in the springtime of recovery" and, continuing the metaphor, that "the tentative buds that we saw six months ago are now blooming in many parts of the world". It points to a strong rebound in world trade, a robust US recovery, strong growth in Asia--especially China--and the Japanese economy's strongest performance for years.

Since its previous forecast, the IMF has revised its growth predictions for this year and next upward by half a percentage point. Its forecasts are for global growth of 4.6 per cent in 2004 and 4.4 per cent in 2005. If realised, the world economy would enjoy its best two-year period in more than a decade.

Among the industrialised countries, the US has been the main engine of growth and the IMF forecasts its economy to grow by 4.6 per cent this year. Japan, the world's second-largest economy, is predicted to record growth of 3.4 per cent--its best performance since 1996.

The IMF is less optimistic about prospects in the eurozone, describing conditions as "wintry" and predicting 1. …