Academic journal article National Institute Economic Review

The World Economy

Academic journal article National Institute Economic Review

The World Economy

Article excerpt

* The prospects for the US economy in 1999 appear brighter than they did last October, but remain heavily dependent on the health of the stock market.

* The Japanese economy is now expected to decline in 1999 by a further half a per cent following the 3 per cent fall in 1998.

* There is a risk that Japan may enter a prolonged downward spiral without a prompt initiative to expand the money supply much more aggressively.

* The Euro Area is slowing down to growth of little more than 2 per cent in 1999.

* With consumer price inflation of only 1 per cent in the euro area, there is scope for a further half a percentage point cut in euro interest rates; we anticipate a quarter point reduction this spring.

The US should expand by 2.2 per cent in 1999, helped by the substantial decline in oil prices which has a strong effect on the energy intensive American economy. Crude oil is now expected to fetch $12 per barrel in 1999, almost a quarter lower than seemed likely at the time of our last forecast. Simulations on our model suggest that this sharp decline in oil prices will raise US growth by 0.5 percentage points while reducing consumer price inflation by 0.5 to 0.75 percentage points, more than offsetting any inflationary impulse from the recent fall in the dollar. …

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