Thursday, April 14, 2005

world bank/imf spring meetings

High oil prices might be pushing the world economy into trouble. Oil prices are 70% higher in real terms compared to two years ago. On April 7th, the economists suggested that the world get used to an "oil shock" that was permanent. Higher oil prices certainly have not helped the Japanese economy and the unemployment rate in Germany is 8.9%. The IMF reckons that global growth in 2005 will be 0.8 percentage points lower than last year.

The world economy is much less oil-intensive than it used to be. In contrast to the supply shocks of the 1970s, much of the recent run-up in prices has been caused by rapidly rising demand: oil is dear in part because some economies, especially America’s and China’s, have been growing vigorously. Central banks’ strong reputations for fighting inflation have stopped the translation of higher oil prices into wage-price spirals. These fortuitous conditions may not last, but for now they are good reasons not to be too pessimistic.

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