Money

Issue No. 25 - October/November 2005

Global growth holds its own in resilient markets

by Tony Catt

Global growth proved resilient during the first half of 2005, with support from corporate activity and accommodative monetary policy stances providing the key fuel. We maintain our forecast that global GDP growth will cruise at a modestly above-trend 3-3.5% pace in coming quarters.

Along with resiliency, a key characteristic of the global economic landscape is the wide divergence in performance across countries and sectors.

An axis of vigor has emerged — incorporating the US, Japan, and China — that is generating much of the growth in global demand. Western Europe, in contrast, remains stubbornly weak.

Interest rate policy adjustments in North America and Asia will be aimed at removing stimulus. Key features in the short-medium term include US interest rates which are expected to reach 4.5% by early next year and China’s implementation of a change in its foreign exchange regime.

Resilience and divergence

Neither rising energy prices nor...

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