For the past three years the world economy has grown relatively strongly and last year saw the fastest pace of growth since 2011. Our analysis shows that this growth was broad-based and more synchronised than previously in the advanced economies (see Box A). While we have an incomplete picture of economic activity in the first quarter of 2018, indications are that the world economy carried over considerable momentum from 2017 and we continue to expect relatively strong global growth in 2018 and 2019.

The widespread broad pattern of stronger growth is a positive factor that is expected to endure. We continue to expect growth to be a little stronger in 2018 than in 2017, but do not expect to see growth reaching much over 4 per cent. This is partly a consequence of the slower pace of growth in China as the economy makes its transition over the longer period. In global growth accounting terms this effect is slightly offset by China now being a larger economy within the world total. But it also, especially in the medium-term, arises from some economies moving beyond a 'catch-up' phase and starting to experience tighter capacity levels and monetary policies reacting gradually to this. Reflecting anticipated trends in demographics, productivity and structural factors, our medium-term forecasts anticipate global growth running at around 3.5 per cent a year which, while short of the over 4 per cent average in the five years preceding the Great Recession, remains a robust performance.

Three features of the outlook are particularly noteworthy, especially for the advanced economies. First, stronger growth and falling unemployment rates have led to increasing concerns about reduced spare capacity and some anticipation of pressure building on inflation. So far, the inflation figures have failed to register this and 'lowflation' has continued (perhaps the UK might be seen as an exception here but the currency depreciation since mid-2016 is the main reason for the recent higher inflation). Just because higher inflation has not been evident so far, does not mean that it will not be in the future and inflation expectations are important here. So, for the advanced economies, the issue of whether continued growth and tighter labour markets will lead to faster wage growth and eventually higher inflationary pressure remains a key risk for the forecast.

The second issue is the stance of monetary policy. The USA has led the way in terms of reducing the extent of monetary accommodation. Our expectation is that this move will spread and our forecasts include gradual policy rate increases in the UK and Euro Area over the medium term, broadly in line with recent market expectations. The forecast does not imply dramatic changes in policy interest rates, but rather a gradual upward path in response to continued growth and a concern about a possible upward bias to inflation.

Thirdly, trade policies may well provide an added risk for the outlook. While in the major Western economies what has become known as fiscal austerity appears to be rolling back, trade policy is now emerging as an issue, with a focus on the US and its relationships with the Far East and the Euro Area. At the time of writing, the US has announced tariff changes on a small number of focused sectors. But the possibility of wider impositions and retaliations is a risk for the prospects for world trade and growth forecasts. These risks are discussed in Jorra et al. and Slopek in this Review. (1)

Recent developments and the baseline forecast

Our revised baseline forecast

Economic news to date has been broadly tracking our February 2018 Review forecast and forward-looking developments have not been sufficient to change our view on the global outlook. Global growth is expected to run at just under 4 per cent a year in the next two years after 3.7 per cent last year. This is a slightly faster pace of growth than in the preceding five years, but it is not a marked acceleration. There are some early indicators that the pace of growth could slow in the latter part of 2018 and into 2019. Into the medium term, the pace of growth is expected to be weaker, reflecting a continued narrowing of output gaps in the wake of the Great Recession and so 'catch-up' growth disappearing, demographic effects especially in the major industrialised economies and a gradual deceleration in growth in China and some other Far Eastern economies.

Our expectation remains for inflation generally to be broadly in line with policy targets. This, together with a narrowing of output gaps, contributes to a gradual rise in policy interest rates. Our policy rate expectations are consistent with market expectations and there are risks of policymakers moving more slowly or more rapidly, reflecting low inflation and uncertainty or perhaps to create some monetary policy space as a guard against possible future negative economic shocks. These risks are not in the baseline forecast.

Recent economic developments

In its April 2018 update the IMF matched our projection for global growth in 2018 at 3.9 per cent (the same as ours), with growth continuing at that pace in 2019. These forecasts were stronger than those made a year ago. To add to the idea of momentum building through 2017 and into 2018, it is important to note that the most recent expansion has been broad based and synchronised (see Box A). In addition, world trade last year was faster than global output growth after two years of falling short, consistent with a pick-up in global investment. This issue was discussed in previous Reviews. (2)

Amongst the highlights of the expansion has been the duration of the US growth phase. This is now approaching the record 10-year expansion from March 1991 to March 2001. Growth in the Euro Area has generally surprised on the upside over the past year, with growth of 2.5 per cent in 2017 showing a rebound from 2016's dip in growth. The rapid overall pace of growth in the Euro Area (at 0.6 or 0.7 per cent quarter-on-quarter in each quarter in 2017) masks a divergence of experience between countries within the Euro Area. Spain (3.1 per cent) and Germany (2.5 per cent) performed strongly, with unemployment falling markedly, while Italy and Greece, for example, both grew by around 1.5 per cent. Inflation within the Euro Area remains subdued, and has enabled the ECB to continue its monetary accommodation policy but this will soon be phased out.

Japan saw a rebound in growth to 1.7 per cent and, among emerging economies, India and China have continued to show growth well ahead of the global average. Turkey and Vietnam performed strongly with growth in 2017 of 7.4 and 6.7 per cent respectively. The generalised pick-up in activity has assisted commodity producers.

As with growth, generally subdued inflation has been widespread, with a notable reduction in inflation in Brazil (from 8.7 per cent in 2016 to 3.4 per cent in 2017). Turkey and Mexico are two large economies that have bucked the wider trend on inflation, with inflation having risen over the past year.

Monetary policy

Within the advanced economies, the US Federal Reserve raised policy rates three times in 2017 and has already acted once so far this year (in March). Two further increases are expected this year, with rates rising further in 2019. However, the policy outcome remains data dependent, especially with regard to inflation, which has persistently fallen below its target. In contrast, the ECB has continued its policy of quantitative easing, with policy rates held at the lower bound. The pace of quantitative easing, in terms of the new flow of asset purchases, has already been reduced since December to 30 billion [euro] a month until September. The Bank of England raised rates back to 0.50 per cent last year and at the latest (March) meeting two MPC members voted for an immediate increase.

Outside the G7, while there is a trend towards gradually higher policy rates, the monetary policy debate is more diffuse. Given currency linkages, the pressure from US policy rate rises is likely to be transmitted to some emerging market economies. However, different economies are at different phases of the cycle and so the pattern of expected policy rate movements is more diverse amongst emerging markets.

Financial and foreign exchange markets

After warnings about elevated equity valuations, equity markets fell sharply in February.

Following news of US tariffs on steel and aluminium in early March, the S&P index fell and this fall reverberated in other markets. After calming quite quickly, the market has, at the time of writing, not recovered its peak of late January but is close to its start of year value despite the trade announcements.

Box A. The Great Synchronisation

Economic growth has risen in a synchronised manner around the world
in recent years (King, 2018; IMF, 2018; Naisbitt et al., 2018), but
to what extent is synchronised growth unusual? In this box, I
investigate the degree to which economic growth has been
synchronised across twenty OECD countries from the first age of
globalisation to the present.

A simple measure of synchronicity is the standard deviation of the
rate of economic growth across countries. Figure AI plots how this
measure has evolved over time, where a lower (higher) standard
deviation represents higher (lower) synchronisation. (1) Three
distinct eras of synchronisation can be seen: an era of moderate
synchronicity c. 1870-1913, an era of low synchronicity c. 1914-45,
and an era of high synchronicity c. 1945 onwards. The first era is
well known by economic historians. This was the first age of
globalisation (Ferguson and Schularick, 2006), which was a period
of high international trade underpinned by the classical gold
standard--a fixed exchange rate system adopted by two-thirds of the
world's economies (Reinhart and Rogoff, 2011). The second era spans
the beginning of the Great War to the end of the Second World War.
This was a time of rising protectionism and a breakdown of the
international monetary system (Findlay and O'Rourke, 2007). The
third era is the 'Great Synchronisation'. In the aftermath of the
war, the Bretton Woods conference laid the foundations for new
international economic institutions, such as the International
Monetary Fund, World Bank and World Trade Organization.

After a long, secular decline in the dispersion of world economic
growth, 2017 was by this measure the most synchronous year on
record. Of the twenty advanced economies in the sample, the minimum
rate of growth was 0.7 per cent, while the highest
was 3.2 per cent. The simple fact that growth was positive
in all countries is rare, occurring in only sixteen years since
the 1870s. One explanation could be that the financial crisis
was a large global shock that reset the clocks on economies
around the world, plunging each into recession and then
recovery. As the shock fades over time, however, these
countries might tend to move out of sync as growth runs
at slightly slower and faster rates across countries, in
line with the growth of the supply sides of the respective
economies. Yet while this explanation might explain the high
synchronicity since the crisis, it misses the long-run factors
that set the Great Synchronisation in train in 1945. A central
factor has been the development of international economic
institutions that have lowered the barriers to the movement
of capital and goods, tying the fortunes of distant economies
together.

NOTE

(1) A similar pattern is seen in the cross-country standard
deviation of the change in growth rates.

REFERENCES

Bolt, J., Inklaar, R., de Jong, H. and van Zanden, J.L. (2018),
'Rebasing "Maddison": new income comparisons and
the shape of long-run economic development', GGDC
Research Memorandum 174.

Ferguson, N. and Schularick, M. (2006), 'The empire effect:
the determinants of country risk in the first age of
globalization, 1880-1913', Journal of Economic History, 66,
pp. 283-312.

Findlay, R. and O'Rourke, K.H. (2007), Power and Plenty: Trade,
War, and the World Economy in the Second Millennium, Princeton
University Press.

IMF (2018), World Economic Outlook: Cyclical Upswing, Structural
Change, International Monetary Fund, April.

King, S. (2018), 'Why the global economy is due for a downswing',
Financial Times.

Naisbitt, B., Hantzsche, A., Lennard, J., Lenoel, C., Liadze, I.,
Lopresto, M., Piggott, R. and Thamotheram, C. (2018), 'The World

Economy', National Institute Economic Review, 243, F43-80.
Reinhart, C.M. and Rogoff, KS. (201 I), 'From financial crash to
debt crisis', American Economic Review, 101, pp. 1676-706.

This box was prepared by Jason Lennard.

Caption: Figure Al. Standard deviation of real GDP per capita
growth, 1871-2017

The Vix index (3) (which is sometimes referred to as the 'fear index' for financial markets) traded at around 10.6 during the second half of 2017, 3 points lower than a year earlier. But the first quarter of this year saw considerably more volatility, with some sharp jumps in early February. During the quarter it briefly hit levels last experienced during 2011.

In the US, the increase in short-term policy rates in March continued to be interpreted by markets as a gradualist step and market expectations for short-term rates in the longer term remain below the Federal Reserve's implied median expectation from the 'Dot Plot' chart. At December 2017, the long-run expectation stood at 2.75 per cent, and at the 21 March 2018 meeting it edged up slightly, closer to 3 per cent. Yields on 10-year US treasuries have risen by around 60 basis points over the year so far.

Movements in medium-term government bond yields in the Euro Area have been limited over the past quarter (and year) but there the monetary policy background has been different, with the ECB holding the rate on the deposit facility at -0.4 per cent and continuing with its quantitative easing policy, albeit winding down the pace of net new asset purchases.

The US dollar has continued to depreciate rather than appreciate. In the first quarter of 2018 it fell by 2 per cent in trade-weighted terms after a 10 per cent fall in 2017, perhaps reflecting uncertainties about US trade policy more generally. In the opposite direction, the euro is up 0.4 per cent in trade weighted terms to date in the first quarter, and the Yen is up 2 per cent.

Commodity markets

Over the course of 2017 the Brent oil price increased by 21 per cent and rose to its highest since late 2014. This marked an 82 per cent increase over a two-year period. North American shale oil production increased during 2017, with higher oil prices helping to boost production incentives. In the first quarter, the oil price fluctuated around $65 per barrel, but in early April it rose to $70 for the first time since late 2014. The forecast for oil prices broadly follows the path from futures prices.

In US dollar terms, The Economist all-items commodity price index rose 1 per cent in the first quarter, with food prices up nearly 6 per cent but metals down about 6 per cent.

Risks to the global forecast

Our projection is for 2017 and 2018 to be the strongest pair of years for global growth since 2010-11, with growth having surprised forecasters on the upside last year. While our near-term global growth projections are for continued robust growth, there are possible upside risks to growth. These upside risks tend to attract less comment than possible downside risks, perhaps in part as a legacy of the painful experience of the Great Recession. Our view is that the risks continue to be broadly balanced around our central forecast and this section describes the principal economic risks that we currently anticipate.

On the positive side, the strengthening in activity has a synchronised nature. (4) This process could well have further to go, with the possibility of domestic growth in economies being boosted by investment spending growth as a response to stronger global demand--giving almost a classical accelerator effect. If any such further expansion is not met with higher inflation as a response, it could prove to have further to run and give a boost to global growth. So far, in the major industrialised economies, increased growth has brought lower unemployment without, as a general statement, higher price inflation. Monetary policy has remained accommodative as a consequence. In a virtuous circle this could remain a feature and the pace of growth could accelerate. But if inflation were to rise (or to be expected to rise) and policy interest rates rise in response, this possible effect could be choked off.

Box B. Predicting recessions in the United States with the yield
curve

There is a large literature on the relationship between the yield
curve and recessions that started in the 1980s as a result of the
inability of macroeconomic models to explain sudden downturns in
economic activity. In this box, we review the literature on the
predictive power of the yield curve, with a particular focus on the
United States, and compute the current implied probability of a US
recession using data ranging from 1953 to 2018.

Recessions have often been associated with an inversion of the
yield curve, moving from a positive slope to a negative one. A
positive slope of the yield curve comes from the fact that
investors require a premium for holding longer maturity bonds (the
term premium) or expect the short-term rates to be higher in the
future. A negative slope is a more unusual event--it has occurred
less than 10 per cent of the time in the US in the past 65
years--reflecting the fact that the economy is probably in a
transitory phase. In that situation, investors expect the future
short-term rates to be lower than the current ones, according to
the expectations hypothesis. Figure Bl displays the spread of the
10-year Treasury note yield minus the 3-month Treasury bill yield.
The figure shows indeed that recessions have often been preceded by
a negative value of the spread.

Laurent (1988) and Estrella and Hardouvelis (1991) first showed
that the spread in yield between longer-dated Treasury notes and
short-dated T-bills could help predict future real GNP growth.
Harvey (1988) and Estrella and Hardouvelis found that the yield
spread can also be used to help forecast other economic variables
such as consumption and investment growth. Comparing the role of
the yield spread to other financial and economic indicators,
Estrella and Mishkin (1998) concluded that while stock market and
Stock-Watson indicators have good predictive power one quarter
ahead, the yield spread dominates at longer time-horizons, in
particular one year ahead, to forecast recessions. International
evidence is however more mixed than for the United States; Chinn
and Kucko (2015) found that the yield spread performed relatively
well predicting recessions in Germany and Canada but it performed
less well in Japan and Italy.

We examine the probit methodology of Chinn and Kucko to estimate
the probability of a recession in the US at any point within the
next twelve months. As is common in the literature, we define the
yield spread as the difference in yield between the 10-year
Treasury note and the 3-month Treasury bill and use the recession
dates from the NBER. All data are of monthly frequency, between
April 1953 and March 2018. Figure B2 shows the implied recession
probabilities from the model and in the shaded areas the actual
recessions. A reading above 50 per cent indicates that a recession
is likely to be either ongoing or about to start in the next twelve
months. Looking at the statistical power of this model, we can see
that it has good 'precision'--when the model identifies that a
recession month is likely during the following 12 months, it is
correct in 69 per cent of the cases--but a rather low
'sensitivity'--when a recession month actually happens during any
of the following 12 months, the model identifies it in only 35 per
cent of the cases. So the model is far from perfect because it
gives some false negatives. However, the model fares much better at
predicting the onset of a recession period. For all the nine
recession periods in our sample (we exclude the first one in 1953-4
because we don't have yield information one year in advance of the
beginning of the recession), the indicator correctly rose above 50
per cent in the 12 months before the beginning of the recession.
The signal came sometimes earlier and sometimes later. In the four
recessions of 1970, 1980, 1990 and 2008, the indicator was already
at 50 per cent or above more than 12 months before the first month
of the recession and in the remaining five recessions the signal
appeared between 5 and 10 months before the beginning of the
recession.

The latest data point for March 2018 is a yield spread of I. I per
cent, which using the model translates into an estimated
probability of recession within the next twelve months of 30.9 per
cent. While this may appear quite high to forecasters, who look at
a range of economic indicators, it is only marginally higher than
the unconditional probability of 27.8 per cent, and well below the
50 per cent threshold. What is more interesting is that the
indicator is on an upward trend, and in November 2017 it reached a
10-year high before levelling off. The main reason for the
flattening of the yield curve in recent years is that the 3-month
yield increased from 0 to 1.7 per cent while the 10-year yield
stayed broadly flat. In short, the indicator does not indicate an
imminent recession, but it would be wise to monitor if the yield
curve flattens further.

At this point, we should note that the New York Fed publishes on
its website (1) a recession indicator with a different methodology: it
computes the probability of recession in exactly twelve months,
rather than at any point within the next twelve months. Because of
its more narrow focus, the Fed indicator gives by construction a
systematically lower probability of recession, with the latest
reading for March at 10.8 per cent, also close to the unconditional
probability of 13.0 per cent. The reason why we chose the
cumulative indicator is that the average yield spread in the twelve
months before the beginning of a recession has historically been
lower than exactly twelve months before the beginning of a
recession: 0.0 per cent versus 0.6 per cent. This suggests that, as
the signal from the inversion of the yield curve sometimes arrives
late, the Fed indicator may err on the optimistic side.

Interpreting these results should be done with a degree of caution
for several reasons. (2) First, the severity of the Great Financial
Crisis has pushed the Fed into unprecedented monetary actions; Fed
funds rates reached the Zero Lower Bound (ZLB) and the Fed bought a
large quantity of long-dated government bonds as part of its
Quantitative Easing (QE) programme. Both ZLB and QE have probably
artificially reduced the yield spread by respectively pushing up
the short rate and pushing down the long rate compared to what they
would otherwise have been. As a result, the information content of
the yield curve may have been temporarily blurred. Looking forward,
the current tightening of monetary policy by the Fed is likely to
have ambiguous effects on the slope of the yield curve; increasing
Fed funds rates increases the short-term rates but reducing its
balance sheet (composed mainly of long-term T-notes) also increases
yield at the long end. In that regard, the current situation is
different from what happened in previous business cycles. Secondly,
the coefficients of the probit regression are not stable with
regard to the estimation period sample, which means that
out-of-sample forecasting performance is likely to be less good. As
an example of such a structural break in the data, the average
yield spread has nearly doubled since the mid-1980s as can be seen
in figure B1: between 1953 and 1985, it averaged 1.1 per cent and
since 1985 it has averaged 1.9 per cent. Indeed, the 'Great
Moderation' led to short rates decreasing more than long rates on
average.

To conclude, using the yield curve to predict upcoming recessions
is an easy and model-free way of extracting some of the information
contained in the government bond market to forecast an event that
is otherwise very difficult to predict. Our own research and that
of the New York Fed and the San Francisco Fed (3) suggest that the
possibility of a recession in the US has risen somewhat over the
past year but it is still far from our central case outlook.

NOTES

(1) https://www.newyorkfed.org/research/capital_markets/ycfaq.html.

(2) Chair Yellen's December 2017 press conference
https://www.federalreserve.gov/mediacenter/files/
FOMCpresconf20171213.pdf.

(3) Bauer M.D. and Mertens, T.M. (2018), FRBSF Economic Letter
https://www.frbsf.org/economic-research/files/el2018-07.pdf.

REFERENCES

Chinn, M. and Kucko, K. (2015), 'The predictive power of the yield
curve across countries and time', International Finance, 18(2), pp.
129-56.

Estrella, A. and Mishkin, F. (1998), 'Predicting U.S. recessions:
financial variables as leading indicators', The Review of Economics
and

Statistics, MIT Press, 80(1), February, pp. 45-61. Estrella, A. and
Hardouvelis, G. (1991), 'The term structure as a predictor of real
economic activity '.Journal of Finance, 1991, 46, 2, pp. 555-76.

Harvey C. (1988), 'The real term structure and consumption growth',
journal of Financial Economics, 22, 2, pp. 305-33. Laurent, R.D.
(1988), 'An interest rate-based indicator of monetary policy,'
Economic Perspectives, Federal Reserve Bank of Chicago, January,
pp. 3-14.

This box was prepared by Cyrille Lenoel.

Caption: Figure B1. Yield spread between 10-year Treasury note and
3-month Treasury bill

Caption: Figure B2. Probability of a recession in the US within the
next 12 months, implied by the yield curve

Box C. The re-emergence of concerns about debt

One outcome of the financial crisis and Great Recession is that the
monetary authorities in many countries now regularly publish
reports on financial stability and discuss the main risks that they
think could adversely affect economic and financial conditions. As
would be expected, debt is one topic. In part this may just reflect
back to the build-up of debt before the Great Recession. But it
also reflects the relatively low levels of policy interest rates
since then and concerns about what might happen to debt service
burdens should policy rates rise. This note looks at some recent
trends in debt internationally, noting the increase in debt,
especially amongst emerging economies. The focus is on private
sector debt, in particular trends in household sector and
non-financial company sector borrowing. The point is not to be
alarmist about recent trends but rather to highlight something that
may become a risk issue should the world economy face a negative
shock or should policy and market interest rates rise markedly
faster than expected.

In advanced economies (as defined by BIS statistics), private
non-financial sector debt increased from 144 per cent of GDP at the
end of 2001 to 163 per cent of GDP by the end of 2008. Of the
credit at end 2008, households accounted for 47 per cent and
non-financial companies 53 per cent. Private non-financial sector
debt has since risen to 168 per cent of GDP, a notable slowing in
the pace of debt accumulation, with the shares broadly constant
(households 45 per cent) but with debt still rising. In contrast,
in emerging economies private non-financial sector debt held steady
in the run-up to 2009, from 70 per cent of GDP at the end of 2001
to 76 per cent of GDP at the end of 2008. It has since risen to 143
per cent of GDP. The key feature is that corporate credit has
increased markedly. Corporate debt is now estimated at 104 per cent
of GDP and 79 per cent of the total.

Rapid growth in corporate debt in China has played a major role in
the emerging markets story. According to BIS figures, since late
2008 the share of emerging market corporate sector credit that is
due to China has risen from 46 per cent to 70 per cent That said,
other emerging market economies have seen their corporate sector
debt rise by 66 per cent in US dollar terms over the same period.

The IMF (2015) has noted that at the same time as corporate debt of
non-financial firms across major emerging market economies has
risen, the composition of that corporate debt has been shifting
toward bonds. While credit can be used to fund productive
investment, thereby boosting growth, for companies there is also an
added possible concern in that some bond finance will have been
arranged in foreign currency terms and not based on domestic
interest rates. This creates a potential added risk if, for
example, credit is in US dollars and US interest rates rise
relative to domestic rates and also if the value of the US dollar
appreciates, especially if the primary source of cash for
repayments is domestic currency based and does not keep pace. The
IMF notes "tentative evidence that listed firms that have issued
(bonds) in foreign currency do not appear to have raised their
foreign exchange exposures". To date, with the dollar index
depreciating, this has not been a realised concern, but, with debt
having risen sharply, adverse shocks to the global economy run the
possible risk of bringing the debt crises of previous decades back
into focus.

REFERENCES

Dembiermont, C., Drehmann, M. and Muksatunratana, S. (2013), 'How
much does the private sector really borrow?', BIS Quarterly Review,
March.

International Monetary Fund (2015), 'Corporate leverage in emerging
markets--a concern?', IMF Global Outlook, October. Liadze, I. and
Haache, G. (2017), 'US monetary policy and its impact on emerging
market economies', National Institute Economic Review, 240, May.

This box was prepared by Barry Naisbitt

Caption: Figure C1. Total credit to private non-financial sector as
percentage of GDP

Caption: Figure C2. Non-financial private sector debt to GDP ratios

To date, the other side of the improved overall economic performance has been generally disappointing productivity growth. This, as discussed in the February Review and at a special NIESR session at the Royal Economic Society conference in March 2018, (5) has been a quite generalised feature of the advanced economies, with productivity growth disappointing relative to expectations based on past productivity growth rates. It is possible that stronger growth and its more synchronised nature could lead to a stronger path of demand and business investment and a subsequent boost to productivity growth. This would both add to future capacity and potentially further postpone any upward adjustment in inflation, which could result in a revival of productivity growth and so support higher real earnings growth (6) and increased confidence. As a consequence, the upswing could continue more strongly and for longer than anticipated.

If accommodative monetary policy has a lagged effect on growth, it is possible that the effect of the easing already seen is yet to be fully appreciated. So, with monetary policy still remaining supportive, growth in Japan and the Euro Area could provide a greater boost to global activity than anticipated in this outlook. At the same time, the recent fiscal measures in the US could add more momentum than expected and so the expectation of a gradual slowing on growth starting in the latter part of 2018 could be overturned.

Downside risks to the outlook come from several possible sources. In the US the gradual tightening of monetary policy seen in 2016 and 2017 (and continued in the first quarter of this year) has come at a time when the unemployment rate has fallen to 4.1 per cent, a 17year low. At the same time, inflation has been persistently below its target, which has led some economists to argue that there was not a need to increase policy rates. With the US economy now approaching its second longest postwar expansion, there is perhaps a natural focus on how long the expansion could last. There is a history of research in the US that has linked recessions to inversions in the yield curve and the focus on this has sharpened because the yield curve spread has narrowed as policy rates have risen. While it can always be argued that 'this time is different', Box B provides a brief examination of what simple models of the relationship imply. From this, a US recession does not look imminent. San Francisco Fed Senior Policy Advisor Glenn Rudebusch found that "the historical record since World War II does not support the view that the probability of recession increases with the length of the recovery". (7) While the US expansion is ageing, it may have much longer to run.

If synchronisation has had internal economic consequences that lead to more restrictive, anti-global policies then the synchronised nature of the recent global expansion noted in Box A may present a risk in itself. While a synchronised expansion may appear beneficial, it could be that the synchronisation itself contains the seeds of its own undoing. If economies become more dependent on exports to other growing economies to generate their own growth, this may increase the possibility that a shock that is unique to one economy is transmitted to other economies, increased synchronisation may increase the risks across economies, and if the next phase is a de-synchronisation, then slower growth could result.

Equity markets in the first quarter have been more volatile than over the previous year, perhaps reflecting the nature of policy shocks (especially related to trade) but also reflecting views that stock markets appear to be richly valued relative to what might be regarded as fundamentals. The most widely quoted analytical approach uses the Shiller CAPE index for the US (see figure 4). This indicator remains elevated, close to its highest level since the internet bubble. While there is an active debate about the precise inferences that can be drawn from this, it can be viewed as a potential indicator of vulnerability to a negative shock. Falling equity prices would reduce household wealth which, in turn, would be likely to have negative effects on consumer spending and possibly also indirect effects from a reduction in confidence or an increase in uncertainty.

Box D. The war on trade: beggar thy neighbour--beggar thyself?

A long-held and widespread consensus in economics is that free
trade creates more benefits than costs. It allows countries to
specialise in goods they are good at producing (Ricardo, 1817),
opens markets for firms to exploit economies of scale and for
consumers to enjoy a wider variety products (Krugman, 1979) and
exposes producers to international competition, raising the overall
level of productivity (Melitz, 2003). However, under certain
circumstances delaying opening up to trade can be beneficial. For
instance, the once emerging markets of Asia, Japan, South Korea and
China, only entered the world stage of trade once internationally
competitive industries had developed. Existing barriers to trade
continue to be held up in the developed and developing world to
protect workers in less productive industries from painfully rapid
disruptions, such as those described in Foliano and Riley (2017),
consumers from low-quality imports and innovators from a theft of
ideas. The question we raise in this box is: Who wins and who loses
from erecting new barriers to trade? We focus in particular on the
effect of tariff and non-tariff trade barriers on the international
price system.

US President Trump's protectionist rhetoric and imposition of
tariffs on some products from the country's trading partners
together with the UK's decision to leave the world's most
integrated trading block highlight the risk that international
trade might become more costly in the future. Tariffs increase the
cost of shipping goods across borders. This also holds for
regulatory barriers that restrict, in particular, the trade in
services. We use the National Institute's Global Econometric Model
(NiGEM) to run a stylised scenario, that could be thought of as a
supply side shock, illustrating the impact of a 10 per cent
increase in import prices worldwide. (1) This could come as the
result of the imposition of tariffs or a rise in trade costs due to
regulatory barriers. (2)

Our analysis demonstrates that the share of trade in world GDP
would fall by about I percentage point over a 5-year period,
relative to baseline, if import prices were to rise substantially
(see figure DI). To show the impact of the shock on a wide range of
countries, we have chosen economies with differing characteristics:
developed and developing; with different levels of openness; as
well as varying degrees of trade linkages with the US.

As illustrated in figure D2, an increase in import prices raises
inflation and depresses output in all countries, with the magnitude
and persistence depending on the sensitivity of domestic prices to
import prices, the stickiness of domestic prices as a result of
labour market rigidities as well as differences in the reaction of
monetary policy. The increase in trade costs leads to a fall in
domestic demand in all economies, as both private consumption and
investment suffer. Higher domestic prices depress real personal
disposable income and hence private consumption, while increases in
interest rates by central banks in response to rising inflation
discourage investment. The effect on external current account
balances varies across countries both in magnitude and sign--in the
Euro Area and China the current account improves, while in the US
and Brazil it deteriorates. The net effect in each economy will be
determined, among other things, by the relative sensitivity of
export and import volumes to changes in export and import prices as
well as the relative share of exports and imports in total trade
(see the article by Slopek in this Review).

Our results show that a global war on trade has the potential to
make everyone worse off through adjustments in relative prices.
However, some countries would have potentially more to lose than
others depending on each economy's reliance on imports and exports.
The analysis builds on our earlier work (Carreras and Ramina, 2017;
Liadze and Hacche, 2017), which shows that unilateral tariffs can
have detrimental effects not just on others but also on the country
that imposes them. In practice, a global wave of protectionism
would likely affect economies through a range of additional
channels, which have not been considered here, including risk
premia in financial markets and productivity. The fact that we
focus on aggregate outcomes further caveats our results, as we
would expect substantial differences within countries across
industries and along the income distribution.

NOTES:

(1) NiGEM version v1.18b was used for the simulation.

(2) Shocks are applied to non-commodity export prices to deliver
equivalent increases in non-commodity import prices.

(3) The authors wish to thank Garry Young for helpful comments.

REFERENCES:

Carreras, O. and Ramina, M. (2017), 'The risk from increased trade
protectionism', NiGEM Observations, Noll. Foliano, F. and Riley, R.
(2017), 'International trade and UK de-Industrialisation', National
Institute Economic Review, 242, November. Krugman, P.R. (1979),
'Increasing returns, monopolistic competition, and international
trade', Journal of International Economics, 9(4), pp. 469-79.

Liadze, I. and Hacche, G. (2017), 'The macroeconomic implications
of increasing tariffs on US imports', NiGEM Observations, No 12.
Melitz, M.J. (2003), 'The impact of trade on intra-industry
reallocations and aggregate industry productivity', Econometrica,
71(6), pp. 1695-725.

Ricardo, D. (1817), On the Principles of Political Economy and
Taxation, London: John Murray.

This box was prepared by Arno Hantzsche and Iana Liadze. (3)

Caption: Figure D1. World trade-to-GDP ratio

Caption: Figure D2. Average impact on GDP, inflation and the
current account balance-to-GDP ratio over a 5-year period (relative
to baseline)

Another source of potential downside risk to global economic prospects comes from rising debt. This factor has been cited by the Bank for International Settlements (BIS) and in some central banks' and IMF reviews of potential concerns on financial stability. There is considerable commentary about the increased levels of government debt and, given the experience of the Great Recession, about rising household debt (especially mortgage debt in economies such as the UK, Canada, Netherlands and Australia). Much of the concern here focuses on what might happen to debt serviceability when interest rates rise, especially if households have become accustomed to an ultra-low rate environment and current debt-to-income ratios are stretched.

On a broader international scale one area that has been the source of a rapid rise in debt is the corporate sector, especially in emerging markets. This is discussed in Box C. This was recently highlighted by the IMF and here the potential vulnerability is more complex as some corporate borrowers face possible currency movements. Over the past couple of years the US dollar has shown a relative weakening on a trade weighted basis but if US interest rates were to rise faster than anticipated, global growth were to slow and the US dollar were to appreciate, (8) some overseas corporate borrowers could find their exposure increase markedly, putting domestic expansions in the affected economies at risk.

With Jerome Powell having taken the helm at the US Federal Reserve on 5 February and one (widely anticipated) increase in US policy rates already having taken place this year, the most likely policy pace of the Fed has not changed in markets' perceptions. As a result, some of the uncertainty around the consequences of personnel changes at the Fed has dissipated. But uncertainty from trade policy has increased substantially in the first quarter of the year with President Trump's pronouncements on tariffs on China ($50 billion) on 22 March and on steel and aluminium imports (1 March). It is difficult to know how far these might portend further US actions and possible retaliation from the countries named by the US but protectionist rhetoric turning into action has added a key downside risk to the outlook for global trade growth.

With continued robust growth in the Chinese economy remaining a key contributing factor in global growth, any internal downside risks (such as perhaps emanating from the rapid pace of credit growth which has already led to some policy reactions following concerns about over-expansion and losses) could be added to by external trade shocks. To date, tariff measures by the US have been limited in scope but they have created uncertainty about the downside possibilities.

Prospects for individual economies

United States

In the last three quarters of 2017 output in the US, on an annualised basis, expanded by an average of 3 per cent a quarter, exceeding estimates of potential output growth. While recent data seem to indicate a weak start in Ql in real GDP, this is expected to be transitory. Since the beginning of this year, employment has continued to grow strongly and survey-based high frequency indicators suggest further solid growth in the months ahead. Our forecast for GDP growth for 2018 at 2.7 per cent remains largely unchanged, with recent tax cuts and the enacted federal budget agreement expected to support the US economy in the short run.

However, there is uncertainty concerning the size and timing of the economic impact of the changes in fiscal policy. Issues such as the duration of the tax cuts, whether some of them remain temporary or will be made permanent; the impact from an increase in the budget deficit on fiscal sustainability and interest rates; and the introduction of a fiscal boost while the economy is already operating near its potential; are all factors that make assessing the effect of the changes difficult.

Since the publication of our February Review, uncertainties associated with trade policies have increased. On their own, recently imposed tariffs on imported steel and aluminium are not expected to have a significant impact on US economic prospects. However, the possibility of introducing tariffs on a wider range of imported goods and any retaliatory trade actions by other countries have already led to an increase in volatility in some parts of financial markets. Since the end of January, US equity prices have declined by about 6 per cent, yields on long-term government bonds have increased and corporate bond spreads widened.

The labour market has remained strong with payroll gains continuing to outpace the rate of absorption of new entrants into the labour force. Recent gains in the labour force participation rate have meant that the unemployment rate has remained low and unchanged at 4.1 per cent for the past several months despite a significant increase in payroll numbers (see figure 6). While tax reforms can bring more of the population into the workplace, labour force expansion is restricted by demographics.

Wage growth has continued at a modest pace, consistent with weak productivity growth. Average hourly earnings for all employees on private non-farm payrolls have increased in the 2.6-2.8 per cent range in the first three months of the year on a 12-month basis. Inflationary pressures have been limited so far. Inflation, based on a 12-month percentage change in the personal consumption expenditures price index (PCE), remained below 2 per cent in both January and February. Looking ahead, we expect inflation to reach and remain around 2 per cent this year, supported by the fiscal boost when the economy is already near its potential.

Canada

On balance, the outlook for the Canadian economy remains positive. While the outturn of quarterly GDP growth in the final quarter of 2017 was (at 0.4 per cent) slightly lower than we had expected, early indicators for the first quarter of 2018 paint an optimistic picture. The main reason for the more modest expansion at the end of 2017 was high import growth, fuelled by buoyant business investment. In all three months of 2018Q1, the manufacturing PMI reached levels above 55 index points, signalling business conditions substantially better than average. According to the Bank of Canada's Business Outlook Survey, 73 per cent of firms expect greater or similar sales growth over the next twelve months relative to the previous year. While capacity pressures have eased somewhat in the first quarter of 2018 compared to the previous quarter, 26 per cent of firms continue to report labour shortages as the unemployment rate remains at its 10-year low of 5.8 per cent. Labour market tightening now appears to be translating into higher wages, with average hourly earnings increasing by more than 3 per cent compared to a year earlier in the first quarter of 2018. This means that headline inflation and all of the Bank of Canada's preferred measures of core inflation moved up to the middle of the central bank's target range of 1-3 per cent in February (figure 7). We expect inflation to remain around 2 per cent over the next two years, assuming that the Bank of Canada continues to raise its policy rate at a very gradual pace. For 2018 as a whole, we forecast output growth of 2.6 per cent, easing slightly to 2.3 per cent in 2019. Stable inflation and robust growth are consistent with the view that firms are increasingly building up productive capacity. The fact that intentions to invest continue to be high, supported by still easy credit conditions, also points in that direction.

Despite robust growth and steady inflation, some concerns remain. While pressure on the real estate market has recently eased slightly in response to tighter mortgage regulation, the persistently high level of household debt (at 170 per cent of disposable income) remains an important risk to financial stability. In addition, uncertainty about the country's trading relationship with the US, its largest trading partner, keeps increasing. While tariffs on metal exports have been dodged for now, the renegotiation of NAFTA continues to be a risk. If no clear agreement is reached soon, this will likely dampen the investment outlook. While still being in the minority, the share of companies that reported an impact of US policy uncertainty on their business in the first quarter of 2018 has increased to 21 per cent, up from 10 per cent a year earlier.

Euro Area

The Euro Area economy expanded by 0.6 per cent in the final quarter of 2017, the same pace as in the third quarter. With 2.5 per cent annual growth in 2017, this was the strongest since the start of the Great Recession. Consumer spending growth was consistently strong but investment growth proved more volatile during 2017, as did net trade. Despite the strengthening of the euro, export growth has been running at over 1 per cent a quarter for the past year. The latest activity indicators have continued to be robust- the IHS Markit Composite PMI in March showed 55.2. Our expectation is that the momentum from 2017 will lead to the first half of the year showing stronger growth than the second, with some monetary indicators already hinting at a weakening of growth prospects. But with GDP growth of 2.3 per cent forecast this year and a further, but slightly slower, 1.9 per cent next year as the near-term momentum fades, the prospect is for the Euro Area to continue to show robust growth. Some weakening may come from the gradual reduction of the monetary accommodation and the recent appreciation of the euro relative to the US dollar, which could dampen the pace of export growth.

Consumer price inflation was 1.3 per cent in the twelve months to March, the same as in January, well below the 2 per cent target despite the extent of the monetary stimulus provided by the ECB. While last year saw an increase in the rate of inflation of around 1 percentage point, our near-term expectation is that the rise in inflation has stalled and we expect inflation to remain below 2 per cent in both 2018 and 2019.

The unemployment rate fell to 8.5 per cent in February. This was about 1 percentage point lower than a year earlier and the lowest since early 2009. The youth unemployment rate at 17.7 per cent remains substantially above the adult rate (7.7 per cent) although the percentage point gap in these rates has fallen over recent years. The unemployment rate is expected to fall further in the near term especially as the job vacancy rate is already at a high point, but the pace of further reductions is expected to be slow.

The policy stance of the ECB will continue to be a focus for financial markets and the forecast incorporates current policy statements and forward financial market views. The expectation is that quantitative easing will end after September this year, since the pace of asset purchases has already reduced to 30 billion [euro] a month. But the ECB is likely to be watchful and, especially with continued below target inflation, is not expected to tighten monetary policy in a marked fashion.

Germany

After relatively rapid growth in 2017, the German economy continues to experience a robust expansion, but with perhaps somewhat less steam. After GDP growth of 0.6 per cent in the fourth quarter of 2017, supported by net trade and investment, indicators for the first quarter of 2018 have slightly softened. Growth in industrial production and new orders in manufacturing have remained solid but were weaker in February than January. The IFO Business Climate index eased to 102.1 in April from 105.0 in December, mainly because of less optimistic expectations. For the whole of 2018, we forecast GDP growth of 2.4 per cent, compared to 2.5 per cent in 2017. Within the total, we expect strong contributions from domestic consumption and investment. Support from foreign demand may soften over the course of the year as a result of the stronger euro. In 2019, output growth is expected to edge below 2 per cent. Fiscal policy will likely mitigate the lessening in growth but capacity constraints appear to be increasingly binding, especially with the unemployment rate falling to 3.4 per cent in March. Labour force participation of refugees has recently increased but not at a rate sufficient to meet labour demand, while immigration is expected to reduce in 2018, given the widespread economic recovery in Europe.

Despite the tight labour market, real earnings growth remained subdued at 0.5 per cent in the final quarter of 2017 (0.8 per cent in 2017 as whole). An agreement between the IG Metall labour union and employers in the South West's metal sector in February--widely seen as indicative for the rest of the economy--shows that, while wages are likely to rise more in 2018, employees appear to be more willing to forego higher wages in return for reductions in weekly working hours and a better work-life balance. With energy prices expected to rise only moderately, we forecast inflation to remain below 2 per cent over the forecast horizon.

Over four months after the general election in 2017, a new government of the conservative Christian Democrats and left-of-centre Social Democrats was formed in March 2018. A number of measures have been agreed to support investment growth and raise households' disposable income. Spending on infrastructure will rise, welfare benefits and pensions will be increased and national insurance contributions of employees will be relaxed. The German Institute of Economic Research, DIW, calculates that this will raise government spending by 10.3 billion [euro] in 2018, and 27.3 billion [euro] in 2019. Our forecast of government consumption and investment now reflects this change in stated government policy. We have also estimated the effect on the economy using NIESR's global econometric model NiGEM. Figure 10 shows that the additional fiscal spending and lower social security contributions are expected to add around 0.1 percentage points and 0.2 percentage points to annual GDP growth in 2018 and 2019, respectively. The impact on Euro Area growth is around half that size, with countries with strong trade links, like the Netherlands, benefiting from a spillover effect about two thirds of the impact on German growth. (For a detailed discussion of Euro Area responses to German fiscal policy shocks see the article by Jorra et al. in this Review). Overall, the stimulus is not large, partly because the government has promised to stick to a balanced budget, an objective that, according to our estimates, will not be endangered by the additional spending.

France

The French economy expanded in 2017 by 2 per cent after only 1.1 per cent in 2016. In the fourth quarter of 2017, GDP growth accelerated slightly to 0.7 per cent from 0.5 per cent in the previous quarter, thanks to the strong contribution of exports, which grew by 2.5 per cent in the quarter. Household consumption growth was subdued at 0.2 per cent in the quarter as real personal disposable income was hit by an uptick in consumer price inflation which increased from 0.9 per cent in the third quarter to 1.2 per cent in the fourth quarter. Fixed investment grew at around 1 per cent for the third consecutive quarter, recording annual growth of 3.8 per cent for 2017.

Improved business activity led to an increase in tax receipts and a subsequent reduction in the government deficit to 2.6 per cent of GDP in 2017, below the 3 per cent threshold of the Maastricht treaty. For the first time in ten years, the ratio of debt to GDP is forecast to decline in 2018. Fixed income markets have welcomed this news and the yield premium for the French 10-year bond over the equivalent German one reached an 8-year low of 16 basis points in February 2018.

Growth in the French economy stuttered a little at the start of 2018 to 0.3 per cent. Industrial production decreased by 0.4 per cent in the three months ending in February and in March both INSEE's business climate indicator and Markit's service sector PMI were off their peaks reached in the second half of last year. However, most recent indicators still point to continued robust year-on-year growth: sales in wholesale and retail in January 2018 were up by 3.9 per cent from January last year and industrial output in February 2018 was up by 4 per cent from the same month last year. Two recent headwinds support a cautious outlook: the disruptions caused by extremely low temperatures at the end of February and the ongoing strikes at the national railway operator SNCF. With risks balanced between the upside (momentum) and the downside (short-term disruptions), we maintain our GDP growth forecast close to 2 per cent in both 2018 and 2019. We expect a stronger contribution to growth from net trade, largely driven by the improvement in labour cost competitiveness of the past five years, and a temporary uptick in inflation.

Italy

Last year's GDP growth of 1.5 per cent was the strongest since 2010, but even so it was substantially below the Eurozone's average of 2.5 per cent. Output is expected to grow again by close to 1.5 per cent in 2018 and 2019, above our estimate of potential growth. The headline inflation rate (HICP) reached 1.3 per cent in 2017, the highest since 2013, although it dipped below 1 per cent in the first quarter of 2018. We expect it to stabilise at just over 1 per cent this year and then to converge slowly to just below the inflation target by the end of our forecast period, with the slack in the labour market remaining sizeable and likely to decrease over the forecast period. The unemployment rate was at 11.3 per cent in 2017, down from 11.7 per cent in 2016, and we expect it to be below 11 per cent over the coming years.

The recovery in growth has been a domestic demand-driven story, in particular with consumption and private sector investment having added 0.8 and 0.7 percentage points respectively to GDP growth in 2017. Some economic sentiment indicators are softening from the very elevated levels reached in 2017, but the consumer confidence index in March increased to a record high.

Although the pace of the recovery has strengthened, structural problems in Italy remain; public sector debt remains high and unemployment is still significantly above the Euro Area average. Stagnant productivity and possible financial fragility remain threats to the medium-term growth projections. The general elections that took place last March led to a hung parliament and the uncertainty in the election outcome poses a further strain on these issues as it may lead to a period of lack of reforms as well as potential repeal of some of the structural reforms already in place. Most political parties have called for a shake-up of the fiscal austerity programme as well as for more protection for workers, and for lower taxes to support spending. These could be contentious issues for the relationship with the EU as well as posing upside risks to our projection of the government budget balance. While public debt has stabilised, it remains vulnerable to rises in interest rates (which we forecast for late 2019) and to the outcome of the negotiations underway for a coalition government.

Spain

Spain's strong recovery since the financial crisis has continued. According to the latest set of national accounts, economic growth exceeded 3 per cent in 2015, 2016 and 2017. The engine of growth in 2017 was domestic demand, particularly gross fixed capital formation, which was reinforced by a current account surplus. Rising activity has been associated with falling unemployment which, while 10 percentage points below the crisis peak, at 16 per cent is still substantially above pre-crisis levels and the Euro Area average. Unemployment rates for young people (at 35 per cent) remain high. Despite these indications of a substantial amount of labour market slack, prices rose by 2 per cent in 2017, in line with the ECB's definition of price stability.

We anticipate that these favourable economic trends will continue, but to a lesser extent as the post-crisis rebound fades. Real GDP, for example, is anticipated to grow at 2.5 per cent in 2018 and 2.0 per cent in 2019. The unemployment rate is expected to decline to 15 per cent this year and 13 per cent the year after. Consumer price inflation is forecast to fluctuate between 1 and 2 per cent throughout the forecast horizon. In terms of risks, the momentum of the global economy continues to provide an upside risk, while a re-ignition of political uncertainty over the issue of Catalonian independence remains on the downside.

Japan

The economy grew by 0.4 per cent in the final quarter of 2017, the eighth consecutive quarter of growth. Consumption and business investment were both strong, which is welcome news following a recovery that has been largely driven by export growth. However, we do not expect this momentum to be maintained into 2018 as the economy is likely to start to run up against capacity constraints. We forecast growth to average 1.2 per cent in 2018.

The unemployment rate fell sharply to a 24-year low of 2.4 per cent in January 2018, from 2.8 per cent in the previous month, before rising slightly to 2.5 per cent in February. Strong growth following five years of economic stimulus coupled with Japan's declining working age population have led to reported severe labour shortages. The Tankan employment index, which measures the percentage of firms reporting that they have surplus workers minus the percentage reporting insufficient workers, fell to a 27-year low of minus 38 for non-manufacturing firms in the first quarter of 2018 (see figure 14). In response, the government is planning a review of visa rules with the aim of increasing the numbers of skilled foreign workers.

Despite this labour market picture, there has been very little apparent upward pressure on wages and inflation has been well below the Bank of Japan's 2 per cent target. Consumer prices rose by 1.5 per cent year-on-year in February 2018, following a 1.4 per cent rise in the previous month. Real wages fell by 1/2 per cent year-on-year in February 2018, following a contraction of 0.6 per cent in the previous month. We expect inflation to average 0.8 per cent this year and 1.3 per cent in 2019.

Government debt continued to increase in the last quarter of 2017. Since low interest rates mean that Japan's debt servicing costs are actually relatively low at around 14 per cent of GDP, this debt is not as fiscally unsustainable as it may initially seem. Nevertheless, it may reduce Japan's ability to weather any adverse economic shocks that may occur and thus continues to present a downside risk to our forecast.

China

Last year the Chinese economy expanded by 6.9 per cent --above the government's initial target of "about 6.5 per cent" growth--with investment in public infrastructure, consumption growth and foreign demand all contributing to strong performance. In the first quarter of 2018 GDP growth remained strong and reached 6.8 per cent on a year-on-year basis. We continue to forecast a gradual slowdown in the pace of output growth as the economy continues its longer-term path towards rebalancing.

Some policies are likely to become less accommodative in the current year and so weigh on the economic performance. Tighter financial regulation has already been applied in 2017, and this looks likely to continue this year as well. Even though new regulatory rules are not yet finalised, banks have already moved some of their off-balance activity back into the balance sheet, which may have contributed to a slowdown in the money supply growth (see figure 15). In March the People's Bank of China (PBOC) increased the rate on 7-day reverse repurchase agreements by 5 basis points to 2.55 per cent, which is used as a tool to control liquidity in the financial system.

Fiscal policy seems likely to become less expansionary. The government aims to stabilise the debt/GDP ratio and to scrutinise local government financing rules. This may lead to a reduction in infrastructure investment projects, which until now were used as a reliable way of helping to achieve "desirable" GDP growth.

Since the publication of our February Review there have been significant developments concerning the China-US trade relationship. On 23 March America formalised tariffs on steel and aluminium from a selection of countries, including China. In response, China placed tariffs on about $3 billion of American exports to China. Then on 3 April the Office of the United States Trade Representative (USTR) published its proposal to impose a 25 per cent tariff on more than 1,300 Chinese products. A day later China responded with a proposed counter list, which matched both the magnitude (US$50 billion) and the tariff rate (25 per cent) of those proposed by the US. Implementation dates have not yet been set and most probably depend on how the negotiations progress. We believe that it is in both countries' interest to co-operate, but the issues appear as much political as economic.

Russia

Economic activity stabilised in 2016, with GDP contracting by just 0.2 per cent in the year as a whole, after the recession that began in mid-2014. Since then, economic growth has been on an upward trajectory. However, GDP growth slowed down in the fourth quarter of 2017 to 0.9 per cent from 2.2 per cent in the second quarter. This seems to have been somewhat of a temporary phenomenon as industrial production growth returned to positive territory through January and February. However, international sanctions remain a factor hindering recovery: in addition to the EU's extension of its economic sanctions until 31 July 2018, President Trump signed into law new sanctions in retaliation for the Russian government's alleged meddling in the 2016 US elections in early August. The risk of prolonged sanctions remains elevated. Taking into account also the economy's long-established structural problems, we forecast GDP growth of 1.9 per cent in 2018 as a whole followed by 2.3 per cent growth in 2019.

Consumer price inflation, on a 12-month basis, picked up to 2.4 per cent in March from a historic low of 2.2 per cent in February. Having peaked at 16.9 per cent in the year to March 2015, inflation has thus fallen below the Central Bank's target of 4 per cent. The high base effect from last year's food price inflation should continue to exert downwards pressure on annual inflation through the first half of 2018. This has been supported by the relative strength of the rouble against the US dollar, with the Brent Crude oil price in the mid-60s weighing down on imported inflation as well.

Following six reductions in interest rates from 10 to 7.75 per cent in 2017, the Central Bank lowered its benchmark interest rate in mid-February to 7.50 per cent and in late-March to 7.25 per cent. The Governor suggested that the Bank will continue its gradual transition from moderately tight to neutral monetary policy with the likelihood of further rate reductions in 2018. We expect inflation to remain slightly below the target as the economy continues its recovery in 2018.

India

Output expanded at an annualised rate of 7.2 per cent in the final quarter of 2017, with India overtaking China as the world's fastest growing major economy. This marks a return of faster growth after disruption due to demonetisation in November 2016, when all 500 and 1000 rupee notes ceased to be legal tender, and the tax system overhaul in July 2017. We expect growth to average 7.7 per cent this year and 7.9 per cent in 2019. The most recent budget contained measures to appease small business owners and poorer rural voters ahead of next year's general election, including higher minimum prices for farmers and free health insurance for poor families. However, these come at the cost of increasing the deficit target for the fiscal year starting 1 April 2018 to 3.3 per cent of GDP, reneging on last year's promise to reduce the deficit to 3 per cent. Lower than expected tax revenues following the general sales tax reform mean that the deficit for the 2017/18 fiscal year is expected to be 3.5 per cent, significantly overshooting the 3.2 per cent target.

Following over 25 years of increasing openness to trade, with weighted average tariffs falling from 56 per cent in 1990 to just over 6 per cent in 2016 (see figure 18), India has recently taken a more protectionist stance, increasing tariffs on a range of products from electronics to chickpeas in a bid to boost domestic production. This strategy is likely to harm domestic producers who rely on imported components as well as pushing up consumer prices. So although inflation fell to a four-month low of 4.4 per cent year-on-year in February, down from a peak of 5.2 per cent in December 2017, we forecast inflation to average 4.1 per cent this year, rising to 4.3 per cent in 2019.

Brazil

After recovering from a deep recession that took away 8 per cent of economic output from 2014, in 2017 GDP growth was close to 1 per cent. The recovery in output has been driven by stronger domestic demand which, in 2017, recovered after falling by around 6 and 5 per cent in 2015 and 2016 respectively. The pick-up in domestic demand materialised on the back of slowing price pressure and higher real wages supported consumption. High frequency indicators, such as manufacturing PMI and business confidence show growth continuing.

Our projections for GDP growth for this year and next are of 1.8 and 2.3 percent respectively as a consequence. Faster growth is partly due to stronger consumption, supported by the better outlook for real wages given falling unemployment, which peaked in March 2017 at nearly 14 per cent and then edged down in the course of 2017 (although it has gone up slightly at the start of 2018). The regional as well as global upturn in demand will continue to help Brazilian exports and aid the trade position, moving the current account deficit from almost nil in 2017, into positive territory over the forecast horizon.

Annual consumer price inflation fell from a peak of almost 9 per cent in 2015 to just above 3 per cent last year. That allowed the Central Bank to decrease the policy rate to 7 per cent in December and again to 6.75 in February. We expect inflation to consolidate within the Central Bank's target of 3-6 per cent this year and next and to provide support for accommodative monetary policy, which will further support investment. The risks to this forecast are tilted to the downside due to the elections due in October 2018 and to the fiscal position. The fiscal deficit remained at 8 per cent in 2017, leading to an increase in the debt-to-GDP ratio to 74 per cent last year.

NOTES

(1) See Box D in this chapter and Jorra et al. (2018) and Slopek (2018) in this Review.

(2) See National Institute Economic Review (2016), 237, August and 238, November.

(3) The Vix index is seen as a barometer of investor sentiment and market volatility and is a measure of market expectations of uncertain volatility implied by S&P 500 index option prices.

(4) See Box A in this chapter.

(5) See National Institute Economic Review (2018), 'Disappointing productivity growth: an international dimension', 243, February and Chadha, J.S., Kara, A. and Labonne, P. (2017), 'The financial foundations of the productivity puzzle', National Institute Economic Review, 241, August.

(6) See Box B in the UK economy chapter of this Review: 'Decomposing wages: the productivity gap persists', and Royal Economic Society 2018 Annual conference, NIESR 80th Anniversary special session 'Productivity puzzles: past and present'.

(7) Rudebusch, G.D. (2016), 'Will the economic recovery die of old age?', FRBSF Economic Letter, 2016-03, February.

(8) See Liadze, I. and Haache, G. (2017), 'US monetary policy and its impact on emerging market economies', National Institute Economic Review, 240, May.

Appendix A: Summary of key forecast assumptions

by Iana Liadze and Barry Naisbitt

The forecasts for the world economy and the UK economy reported in this Review are produced using the National Institute's global econometric model, NiGEM. NiGEM has been in use at NIESR for forecasting and policy analysis since 1987, and is also used by a group of more than 40 model subscribers, mainly in the policy community. Most countries in the OECD are modelled separately, (1) and there are also separate models for Argentina, Brazil, Bulgaria, China, Hong Kong, India, Indonesia, Lithuania, Romania, Russia, Singapore, South Africa, Taiwan and Vietnam. The rest of the world is modelled through regional blocks so that the model is global in scope. All models contain the determinants of domestic demand, export and import volumes, prices, current accounts and net assets. Output is tied down in the long run by factor inputs and technical progress interacting through production functions, but is driven by demand in the short to medium term. Economies are linked through trade, competitiveness and financial markets and are fully simultaneous. Further details on NiGEM are available on http://nimodel.niesr. ac.uk/.

The key interest rate and exchange rate assumptions underlying our current forecast are shown in tables A1-A2. Our short-term interest rate assumptions are generally based on current financial market expectations, as implied by the rates of return on treasury bills and government bonds of different maturities. Long-term interest rate assumptions are consistent with forward estimates from short-term interest rates, allowing for a country-specific term premium. Where term premia do exist, we assume they gradually diminish over time, such that long-term interest rates in the long run are simply the forward convolution of short-term interest rates.

Short-term interest rates in the US, UK and Canada are expected to continue rising in 2018, but remain unchanged in the Euro Area and Japan. Interest rates in the US are broadly consistent with the path signalled by the most recent Federal Open Market Committee (FOMC) minutes, which are broadly in line with current implied market expectations. As discussed in the UK chapter in this Review, we expect the UK economic growth to stabilise at a level that is close to its potential. Given that inflation is expected to exceed the BoE's target of 2 per cent for the next two years, we expect further 25 basis point increases in August this year and February 2019. Bank Rate is expected to reach 2 per cent in the second half of 2021, this being the point at which the MPC is assumed to stop reinvesting the proceeds from maturing gilts it currently holds, allowing the Bank of England's balance sheet to shrink 'naturally'. (2)

Figure A1 illustrates the recent movement in, and our projections for, 10-year government bond yields in the US, Euro Area, the UK and Japan. The levels of 10-year sovereign bond yields in the first quarter of 2018 have increased slightly since the fourth quarter of 2017 in the UK, the US and the Euro Area--by about 10-40 basis points--but remained largely unchanged in Japan. Expectations currently for bond yields for the end of 2018 are slightly lower for the Euro Area, compared to expectations formed just three months ago; marginally higher for the US, and largely unchanged for the UK and Japan. For the Euro Area they are down by about 20 basis points, and up by about 10 basis points for the US. The forecast implies gradual increases for 10year bond yields but, given the risks around the forecast, more volatile paths could emerge.

Sovereign risks in the Euro Area were a major macroeconomic issue for the global economy and financial markets over several years after the financial crisis. Figure A2 depicts the spread between 10-year government bond yields of Spain, Italy, Portugal, Ireland and Greece over Germany's. These have either remained relatively flat or somewhat decreased. In our current forecast, we have assumed that spreads over German bond yields continue to narrow slightly in all Euro Area countries.

Figure A3 shows the spreads of corporate bond yields over government bond yields in the US, UK and Euro Area. This acts as a proxy for the margin between private sector and 'risk-free' borrowing costs. Reflecting the tightening of financial conditions, corporate bond spreads widened at the beginning of 2016, but have subsequently narrowed barring the jump observed around the period of the UK's decision to leave the EU. Since the beginning of February corporate bond spreads in the US, UK and Euro Area have been on an upward trend, as private sector borrowing costs have risen more than the observed increase in risk-free rates. Our forecast assumption for corporate spreads is that they gradually converge towards their long-term average level.

Nominal exchange rates against the US dollar are generally assumed to remain constant at the rate prevailing on 11 April 2018 until the end of December 2018. After that, they follow a backward looking uncovered-interest parity condition, based on interest rate differentials relative to the US. Figure A4 plots the recent history as well as our short-term forecast of the effective exchange rate indices for Canada, the Euro Area, Japan, UK, and the US. Between the fourth quarter of 2017 and the first quarter of 2018 the US dollar depreciated slightly, by about 2 per cent, in trade-weighted terms, and remained at about 7 per cent below the recent peak reached at the beginning of 2017. The euro continued to strengthen, gaining about 2 per cent in effective terms in the first quarter of this year compared to the last quarter of 2017. Among the emerging market currencies in our model, the largest movement in trade-weighted terms between the fourth quarter of 2017 and the first quarter of 2018 has been the depreciation of the Argentinian peso by about 10 per cent, and appreciation of the South African rand by around 12 per cent.

Our oil price assumptions for the short term generally follow those of the US Energy Information Administration (EIA), published in April 2018, and updated with daily spot price data available up to 11 April 2018. The EIA uses information from forward markets as well as an evaluation of supply conditions. As illustrated in figure A5, oil prices, in US dollar terms, have continued to increase since their recent trough in 2016, and gained about 9 per cent between the first quarter of 2018 and fourth quarters of last year. Expectations of oil prices by the end of 2019 are largely unchanged, compared to the expectation three months ago, which still leaves oil prices about $39 lower than their nominal level in mid-2014. A simulation of the NiGEM model considering higher oil prices was presented in the February 2018 Review. (3)

Our equity price assumptions for the US reflect the expected return on capital. Other equity markets are assumed to move in line with the US market, but are adjusted for different exchange rate movements and shifts in country-specific equity risk premia. Figure A6 illustrates the key equity price assumptions underlying our current forecast. Equity prices in most countries declined between the end of 2017 and the first quarter of 2018, after buoyant performance observed since early 2016.

NOTES

(1) With the exception of Iceland and Israel.

(2) Interest rate assumptions are based on information available for the period to 11 April 2018.

(3) Lennard, J. and Theodoridis, K. (2018), 'Oil and the macroeconomy', National Institute Economic Review, 243, pp. F48-9.

Table A1. Interest rates Per cent per annum

                Central bank intervention rates

            US     Canada   Japan   Euro Area    UK

2014        0.25    1.00     0.10     0.16      0.50
2015        0.26    0.65     0.10     0.05      0.50
2016        0.51    0.50    -0.08     0.01      0.40
2017        1.10    0.70    -0.10     0.00      0.29
2018        1.89    1.42    -0.11     0.00      0.60
2019        2.64    2.08    -0.11     0.09      1.08
2020-24     3.61    3.41     0.30     1.24      2.35

2016   Q1   0.50    0.50     0.00     0.04      0.50
2016   Q2   0.50    0.50    -0.10     0.00      0.50
2016   Q3   0.50    0.50    -0.10     0.00      0.34
2016   Q4   0.55    0.50    -0.10     0.00      0.25

2017   Q1   0.80    0.50    -0.10     0.00      0.25
2017   Q2   1.05    0.50    -0.10     0.00      0.25
2017   Q3   1.25    0.79    -0.10     0.00      0.25
2017   Q4   1.30    1.00    -0.10     0.00      0.41

2018   Q1   1.53    1.20    -0.10     0.00      0.50
2018   Q2   1.83    1.25    -0.10     0.00      0.50
2018   Q3   2.01    1.50    -0.11     0.00      0.66
2018   Q4   2.19    1.75    -0.12     0.00      0.75

2019   Q1   2.37    1.88    -0.14     0.00      0.92
2019   Q2   2.55    2.01    -0.12     0.00      1.00
2019   Q3   2.74    2.14    -0.10     0.09      1.16
2019   Q4   2.92    2.27    -0.08     0.26      1.25

               10-year government bond yields

            US    Canada   Japan   Euro Area   UK

2014        2.5    2.2      0.6       1.9      2.5
2015        2.1    1.5      0.4       1.0      1.8
2016        1.8    1.3      0.0       0.7      1.3
2017        2.3    1.8      0.1       1.0      1.2
2018        2.9    2.3      0.1       1.1      1.6
2019        3.3    2.9      0.4       1.6      2.3
2020-24     3.9    3.8      1.2       3.0      3.5

2016   Q1   1.9    1.2      0.1       0.8      1.5
2016   Q2   1.7    1.3     -0.1       0.7      1.4
2016   Q3   1.6    1.1     -0.1       0.4      0.8
2016   Q4   2.1    1.5      0.0       0.8      1.3

2017   Q1   2.4    1.7      0.1       1.1      1.3
2017   Q2   2.3    1.5      0.0       1.0      1.0
2017   Q3   2.2    1.9      0.0       1.0      1.2
2017   Q4   2.4    2.0      0.0       0.9      1.3

2018   Q1   2.8    2.2      0.1       1.0      1.5
2018   Q2   2.8    2.1      0.0       0.9      1.4
2018   Q3   2.9    2.3      0.1       1.1      1.6
2018   Q4   3.1    2.5      0.2       1.3      1.8

2019   Q1   3.2    2.7      0.3       1.4      2.0
2019   Q2   3.3    2.8      0.4       1.6      2.2
2019   Q3   3.4    3.0      0.4       1.7      2.3
2019   Q4   3.5    3.1      0.5       1.9      2.5

Table A2. Nominal exchange rates

                   Percentage change
                   in effective rate

             US     Canada    Japan     Euro
                                        Area

2014         3.8      -5.7     -5.5      3.1
2015        13.2     -11.2     -6.3     -6.0
2016         5.2       0.3     15.2      4.8
2017         0.6       2.0     -2.4      3.0
2018        -4.0       0.9      1.2      5.2
2019        -0.6       0.2      1.5      1.2

2016   Q1    1.6       4.2      6.5      2.5
2016   Q2   -1.7       2.1      5.7      1.1
2016   Q3    1.1      -1.2      5.9      0.3
2016   Q4    3.6      -0.6     -4.1      0.0

2017   Q1    1.1      -0.1     -2.9     -0.6
2017   Q2   -2.4       0.0      1.0      1.1
2017   Q3   -3.4       7.3     -1.5      4.3
2017   Q4    1.3      -3.7     -1.7      0.6

2018   Q1   -2.3       0.1      2.3      1.9
2018   Q2   -0.5       0.1      1.0      0.5
2018   Q3    0.0       0.1      0.0      0.0
2018   Q4    0.0       0.0      0.0      0.0

2019   Q1   -0.2       0.0      0.5      0.4
2019   Q2   -0.2       0.0      0.5      0.4
2019   Q3   -0.2       0.0      0.5      0.4
2019   Q4   -0.2       0.1      0.6      0.5

            Percentage change in effective rate

            Germany    France    Italy     UK

2014            1.6       1.5      2.5     7.4
2015           -3.7      -3.8     -3.1     5.6
2016            2.4       2.5      2.9    -9.9
2017            1.3       2.0      2.0    -5.2
2018            2.6       3.0      3.5     4.1
2019            0.7       0.6      0.8     0.6

2016   Q1       1.3       1.2      1.5    -5.6
2016   Q2       0.5       0.8      0.7    -1.6
2016   Q3       0.0       0.4      0.0    -7.9
2016   Q4      -0.1       0.1      0.2    -2.6

2017   Q1      -0.4      -0.2     -0.2     0.8
2017   Q2       0.6       0.7      0.7     1.1
2017   Q3       2.3       2.3      2.6    -1.6
2017   Q4       0.3       0.4      0.5     1.7

2018   Q1       0.8       1.1      1.3     1.9
2018   Q2       0.3       0.3      0.4     1.7
2018   Q3       0.0       0.0      0.0     0.0
2018   Q4       0.0       0.0      0.0     0.0

2019   Q1       0.2       0.2      0.3     0.1
2019   Q2       0.2       0.2      0.3     0.0
2019   Q3       0.2       0.2      0.3     0.0
2019   Q4       0.3       0.2      0.3     0.0

                   Bilateral rate per US $

            Canadian    Yen     Euro    Sterling
               $

2014         1.112     105.8    0.754    0.607
2015         1.299     121.1    0.902    0.654
2016         1.314     108.8    0.904    0.741
2017         1.294     112.2    0.887    0.776
2018         1.262     107.5    0.811    0.709
2019         1.257     105.6    0.798    0.699

2016   Q1    1.323     115.2    0.908    0.699
2016   Q2    1.289     107.9    0.886    0.697
2016   Q3    1.310     102.4    0.896    0.762
2016   Q4    1.333     109.5    0.927    0.805

2017   Q1    1.339     113.6    0.939    0.807
2017   Q2    1.330     111.1    0.909    0.781
2017   Q3    1.229     111.0    0.852    0.764
2017   Q4    1.277     112.9    0.849    0.753

2018   Q1    1.265     108.4    0.814    0.719
2018   Q2    1.262     107.2    0.810    0.706
2018   Q3    1.260     107.2    0.809    0.706
2018   Q4    1.260     107.2    0.809    0.706

2019   Q1    1.259     106.6    0.805    0.703
2019   Q2    1.257     105.9    0.800    0.700
2019   Q3    1.256     105.2    0.795    0.698
2019   Q4    1.254     104.5    0.790    0.695

Appendix B: Forecast detail

Table B1. Real GDP growth and inflation

                          Real GDP growth (per cent)

                  2015    2016    2017   2018   2019   2020-24

Argentina          2.7    -1.8    2.9    3.3    3.2      2.4
Australia          2.5     2.6    2.3    3.2    2.7      2.7
Austria (a)        1.1     1.5    3.1    2.0    1.7      1.4
Belgium (a)        1.4     1.5    1.7    1.9    1.9      1.2
Bulgaria (a)       3.6     3.9    3.7    3.8    3.7      2.0
Brazil            -3.5    -3.5    1.0    1.8    2.3      2.3
Chile              2.3     1.2    1.6    3.3    2.7      2.6
China              6.9     6.7    6.9    6.6    6.3      5.7
Canada             1.0     1.4    3.0    2.6    2.3      1.7
Czech Republic     5.4     2.5    4.6    3.4    2.4      1.4
Denmark (a)        1.6     2.0    2.2    1.9    2.1      1.0
Estonia (a)        1.8     2.2    4.8    4.3    3.4      1.9
Finland (a)        0.1     2.1    3.0    2.4    1.9      1.2
France (a)         1.0     1.1    2.0    1.9    1.9      1.5
Germany (a)        1.5     1.9    2.5    2.4    1.9      1.2
Greece (a)        -0.3    -0.3    1.3    2.2    2.3      1.4
Hong Kong          2.4     2.1    3.8    2.8    2.2      2.3
Hungary (a)        3.3     2.1    4.2    3.8    2.3      1.7
India              7.6     7.9    6.4    7.7    7.9      7.2
Indonesia          4.9     5.0    5.1    5.5    5.4      5.0
Ireland (a)       25.5     5.1    7.8    4.9    2.8      2.1
Italy (a)          0.8     1.0    1.5    1.4    1.3      1.2
Japan              1.4     0.9    1.7    1.2    0.9      0.9
Lithuania (a)      2.0     2.3    3.8    3.8    2.6      0.9
Latvia (a)         2.8     1.5    5.0    3.3    1.7      1.8
Mexico             3.3     2.7    2.3    2.1    2.5      2.5
Netherlands (a)    2.3     2.1    3.3    2.7    2.1      1.4
New Zealand        4.2     4.2    3.0    2.7    3.0      2.4
Norway             1.8     1.0    1.9    2.2    2.0      1.4
Poland             3.8     2.9    4.6    3.6    2.9      1.8
Portugal (a)       1.8     1.6    2.7    2.4    2.2      1.8
Romania (a)        4.0     4.8    6.8    4.8    3.1      2.1
Russia            -2.8    -0.2    1.5    1.9    2.3      2.1
Singapore          2.2     2.4    3.6    2.9    2.7      3.9
South Africa       1.3     0.6    1.2    1.4    1.5      2.5
S. Korea           2.8     2.9    3.1    3.1    3.1      3.5
Slovakia (a)       3.9     3.3    3.4    4.1    3.4      1.7
Slovenia (a)       2.0     3.3    5.4    3.7    3.1      1.5
Spain (a)          3.4     3.3    3.1    2.5    2.0      1.7
Sweden (a)         4.3     3.0    2.7    2.8    2.8      1.8
Switzerland        1.2     1.4    1.1    2.0    1.8      1.9
Taiwan             0.8     1.4    2.9    3.3    2.3      3.0
Turkey             5.9     3.2    7.4    4.7    4.6      3.7
UK (a)             2.3     1.9    1.8    1.4    1.7      1.7
US                 2.9     1.5    2.3    2.7    2.6      2.2
Vietnam            6.6     6.1    6.7    7.1    6.8      5.7
Euro Area (a)      2.0     1.8    2.5    2.3    1.9      1.4
EU-28 (a)          2.2     1.9    2.5    2.2    1.9      1.5
OECD               2.5     1.8    2.6    2.4    2.3      1.9
World              3.4     3.2    3.7    3.9    3.8      3.6

                         Annual inflation (a) (per cent)

                  2015    2016    2017    2018    2019    2020-24

Argentina         26.5    41.4    26.3    25.0    16.1     11.1
Australia          1.5     0.9     1.2     2.2     2.4      2.7
Austria (a)        0.8     1.0     2.2     2.1     1.7      1.6
Belgium (a)        0.6     1.8     2.2     1.9     1.7      1.6
Bulgaria (a)      -1.1    -1.3     1.2     2.9     1.6      1.5
Brazil             9.0     8.7     3.4     4.1     5.6      6.0
Chile              4.3     3.8     2.2     2.4     2.7      2.8
China              1.5     2.0     1.6     2.4     2.4      2.7
Canada             1.1     0.9     1.1     2.3     2.3      2.1
Czech Republic     0.3     0.7     2.4     2.0     1.8      1.7
Denmark (a)        0.2     0.0     1.1     1.1     2.0      1.7
Estonia (a)        0.1     0.8     3.7     3.0     3.0      1.9
Finland (a)       -0.2     0.4     0.8     1.0     1.2      1.7
France (a)         0.1     0.3     1.2     1.6     1.4      1.7
Germany (a)        0.1     0.4     1.7     1.7     1.7      1.6
Greece (a)        -1.1     0.0     1.1     1.0     1.7      2.3
Hong Kong          1.2     1.5     2.6     2.9     2.9      3.3
Hungary (a)        0.1     0.4     2.4     3.1     3.9      3.5
India              4.9     4.9     3.3     4.1     4.3      4.8
Indonesia          6.4     3.5     3.8     4.0     4.0      3.8
Ireland (a)        0.0    -0.2     0.2     0.8     1.4      1.6
Italy (a)          0.1    -0.1     1.3     1.3     1.5      1.4
Japan              0.4    -0.5     0.2     0.8     1.3      1.3
Lithuania (a)     -0.7     0.7     3.7     2.8     1.7      1.0
Latvia (a)         0.2     0.1     2.9     2.0     1.7      1.5
Mexico             2.7     2.8     6.0     4.9     3.5      3.2
Netherlands (a)    0.2     0.1     1.3     1.7     1.9      1.6
New Zealand        0.8     0.6     1.4     1.2     1.9      2.2
Norway             2.4     3.4     1.5     2.1     1.9      2.0
Poland            -0.7    -0.2     1.6     1.7     2.1      2.0
Portugal (a)       0.5     0.6     1.6     1.1     1.8      1.4
Romania (a)       -0.4    -1.1     1.1     4.0     2.2      2.2
Russia            15.5     7.0     3.7     3.1     3.9      4.0
Singapore         -0.5    -0.5     0.5     1.3     1.9      2.8
South Africa       4.0     6.2     4.6     4.5     5.9      3.6
S. Korea           0.7     1.0     1.9     2.0     2.2      2.3
Slovakia (a)      -0.3    -0.5     1.4     2.8     1.7      1.3
Slovenia (a)      -0.8    -0.2     1.6     2.1     1.9      1.5
Spain (a)         -0.6    -0.3     2.0     1.7     1.5      1.6
Sweden (a)         0.7     1.1     1.9     2.0     2.2      1.9
Switzerland       -0.6    -0.2     0.2     0.7     1.1      1.8
Taiwan            -0.7     0.8     0.0     1.3     0.8      1.7
Turkey             7.6     7.8    11.1    11.2     8.9      6.0
UK (a)             0.1     0.7     2.7     2.4     2.1      2.0
US                 0.3     1.2     1.7     2.3     2.1      2.2
Vietnam            0.6     2.7     3.5     4.7     2.8      4.1
Euro Area (a)      0.0     0.2     1.5     1.6     1.6      1.6
EU-28 (a)          0.0     0.3     1.7     1.8     1.7      1.7
OECD               0.8     1.1     2.1     2.5     2.3      2.2
World              3.8     4.0     4.1     4.5     4.5      3.7

Table B2. Fiscal balance and government debt

                  Fiscal balance (per cent of GDP) (a)

              2015    2016    2017    2018    2019    2024

Australia     -1.5    -2.1    -1.7    -1.6    -1.0    -1.2
Austria       -1.0    -1.6    -0.5    -0.6    -0.5    -1.3
Belgium       -2.5    -2.5    -1.8    -1.1    -0.7    -2.4
Bulgaria      -1.6     0.0     0.3     0.3     0.1    -0.7
Canada        -0.1    -1.1    -1.0    -1.0    -1.0    -1.5
Czech Rep.    -0.6     0.7     0.9     0.4     0.0    -1.4
Denmark       -1.8    -0.6    -2.4    -1.5    -1.3    -1.4
Estonia        0.1    -0.3    -0.6    -0.7    -0.8    -1.3
Finland       -2.7    -1.7     0.0     0.6     0.2    -1.6
France        -3.6    -3.4    -2.6    -1.9    -1.7    -2.7
Germany        0.6     0.8     1.1     0.9     0.5    -1.2
Greece        -5.7     0.4    -1.2    -1.3    -0.3    -0.1
Hungary       -2.0    -1.9    -3.0    -3.0    -2.8    -2.4
Ireland       -1.9    -0.7     0.8     0.6    -0.2    -1.2
Italy         -2.6    -2.5    -1.6    -1.1    -1.0    -2.4
Japan         -3.5    -4.6    -4.8    -4.2    -4.0    -4.2
Lithuania     -0.2     0.3     0.4     0.1    -0.2    -1.2
Latvia        -1.2     0.0     0.2     0.1    -0.1    -0.8
Netherlands   -2.1     0.4     1.3     2.0     1.7    -1.2
Poland        -2.6    -2.5    -2.0    -1.7    -1.6    -2.2
Portugal      -4.4    -2.0    -1.6    -1.4    -1.1    -1.7
Romania       -0.8    -3.0    -3.1    -3.1    -2.9    -1.9
Slovakia      -2.7    -2.2    -1.6    -1.0    -0.6    -0.2
Slovenia      -2.9    -1.9    -1.0    -1.0    -1.2    -1.8
Spain         -5.3    -4.5    -3.3    -2.1    -1.8    -2.3
Sweden         0.2     1.1     0.9     1.4     1.0    -0.6
UK            -4.2    -3.0    -1.9    -4.0    -3.8    -3.9
US            -4.3    -5.0    -3.6    -5.4    -5.3    -3.2

                Government debt (per cent of GDP, end year) (b)

               2015     2016     2017     2018     2019     2024

Australia      43.9     44.9     45.5     45.2     44.1     38.2
Austria        84.3     83.5     80.3     77.9     74.9     67.4
Belgium       106.0    105.7    103.9    100.0     96.7     92.3
Bulgaria        --       --       --       --       --       --
Canada         97.8     96.6     95.6     91.6     88.2     79.6
Czech Rep.     38.7     35.8     33.4     31.5     30.5     31.1
Denmark        39.5     37.7     36.4     36.8     36.8     39.0
Estonia         --       --       --       --       --       --
Finland        63.6     63.1     61.0     58.5     56.6     53.8
France         95.8     96.6     96.7     95.2     93.7     88.3
Germany        71.0     68.2     64.1     59.6     56.2     47.1
Greece        176.8    180.8    179.5    176.3    165.5    132.5
Hungary        74.4     73.7     68.8     67.7     66.4     61.9
Ireland        77.0     72.9     70.2     67.3     64.6     58.6
Italy         131.6    131.9    132.1    128.2    124.7    116.0
Japan         213.9    216.8    218.2    220.9    219.6    211.0
Lithuania       --       --       --       --       --       --
Latvia          --       --       --       --       --       --
Netherlands    64.6     61.8     55.9     51.9     48.2     41.8
Poland         51.7     53.8     50.5     49.6     49.0     49.9
Portugal      128.8    130.1    127.4    124.9    121.8    111.0
Romania         --       --       --       --       --       --
Slovakia        --       --       --       --       --       --
Slovenia        --       --       --       --       --       --
Spain          99.4     99.0     97.5     94.7     92.4     85.5
Sweden         44.2     42.3     39.1     35.6     32.8     27.4
UK             88.2     88.2     86.0     86.1     84.6     79.3
US            104.1    105.3    103.2    103.4    104.0    100.9

Notes: (a) General government financial balance; Maastricht
definition for EU countries, (b) Maastricht definition for
EU countries.

Table B3. Unemployment and current account balance

                     Standardised unemployment rate

              2015     2016    2017   2018    2019    2020-24

Australia      6.1      5.7     5.6    5.5     5.2        5.1
Austria        5.7      6.0     5.5    5.2     5.2        4.6
Belgium        8.5      7.8     7.1    6.4     6.7        6.2
Bulgaria       9.1      7.5     6.2    5.2     5.3        5.9
Canada         6.9      7.0     6.3    5.8     5.8        6.0
China           --       --      --     --      --         --
Czech Rep.     5.0      3.9     2.9    2.1     1.9        2.6
Denmark        6.2      6.2     5.7    4.7     4.7        4.8
Estonia        6.2      6.8     5.8    6.4     6.0        6.5
Finland        9.3      8.9     8.6    8.4     8.4        8.3
France        10.4     10.1     9.4    8.9     8.4        7.3
Germany        4.7      4.2     3.8    3.6     3.6        4.0
Greece        25.0     23.5    21.5   20.7    19.2       18.5
Hungary        6.8      5.1     4.2    3.9     3.9        4.0
Ireland       10.0      8.4     6.8    6.2     6.1        6.2
Italy         11.9     11.7    11.3   10.8    10.5       10.5
Japan          3.4      3.1     2.8    2.4     3.0        3.3
Lithuania      9.1      7.9     7.1    7.4     7.7        7.8
Latvia         9.9      9.6     8.7    8.1     7.5        6.6
Netherlands    6.9      6.0     4.8    4.5     4.4        4.5
Poland         7.5      6.2     4.9    4.4     4.5        4.2
Portugal      12.6     11.1     9.0    7.8     7.9        8.0
Romania        6.8      5.9     4.9    5.1     4.8        5.0
Slovakia      11.5      9.7     8.1    7.3     7.4        8.2
Slovenia       9.0      8.0     6.6    5.9     5.8        6.4
Spain         22.1     19.6    17.2   15.0    13.2       13.1
Sweden         7.4      6.9     6.7    6.1     6.2        6.7
UK             5.4      4.9     4.4    4.1     4.2        4.7
US             5.3      4.9     4.3    4.1     4.1        4.8

                 Current account balance (per cent of GDP)

              2015    2016    2017    2018    2019    2020-24

Australia     -4.7    -3.1    -2.3    -2.8    -2.4       -2.6
Austria        1.9     2.1     2.8     1.0     1.2        1.1
Belgium       -0.2     0.1    -0.7    -1.6    -1.4        0.1
Bulgaria       0.0     2.3     4.6     4.4     5.4        2.9
Canada        -3.6    -3.2    -3.0    -2.5    -1.8       -0.9
China          2.8     1.8     1.3     0.5     0.5        0.9
Czech Rep.     0.2     1.5     0.9    -0.5    -1.1       -1.3
Denmark        8.8     7.3     7.7     6.9     7.2        8.3
Estonia        1.9     1.9     3.2     1.7     1.1        0.3
Finland       -0.7    -0.4     0.7    -0.2    -0.1        0.7
France        -0.4    -0.9    -1.2    -0.8    -0.5       -1.0
Germany        9.0     8.5     8.1     7.9     7.5        7.4
Greece        -0.2    -1.0    -0.7    -1.4    -0.3       -0.7
Hungary        3.5     6.1     2.9     4.6     5.0        3.1
Ireland       11.0     3.4    12.4    10.7     9.1        9.9
Italy          1.5     2.7     3.0     3.1     3.9        4.9
Japan          3.0     3.7     4.0     3.5     3.7        4.8
Lithuania     -2.4    -1.1     1.0     0.1    -2.4       -3.3
Latvia        -0.5     1.4    -0.8     0.7     0.5       -0.7
Netherlands    8.7     8.5    10.2    10.7     8.7        7.6
Poland        -0.6    -0.3     0.2     0.8     1.0        0.1
Portugal       0.3     0.6     0.6    -0.4    -1.4       -1.4
Romania       -1.2    -2.1    -3.4    -2.4    -2.0       -2.3
Slovakia      -1.7    -1.5    -2.1    -0.9     0.2       -0.6
Slovenia       4.4     5.3     6.4     3.0     3.0        0.7
Spain          1.1     1.9     2.0     1.7     2.3        2.1
Sweden         4.5     4.2     3.2     3.9     4.4        5.5
UK            -5.2    -5.8    -4.1    -4.0    -3.8       -3.5
US            -2.4    -2.4    -2.4    -3.1    -3.4       -3.3

Table B4. United States

Percentage change

                                       2014    2015     2016

GDP                                    2.6      2.9      1.5

Consumption                            2.9      3.6      2.7
Investment : housing                   3.5     10.2      5.5
           : business                  6.9      2.3     -0.6
Government : consumption              -0.5      1.3      1.0
           : investment               -1.4      1.6     -0.2
Stockbuilding (a)                     -0.1      0.2     -0.4
Total domestic demand                  2.7      3.5      1.6

Export volumes                         4.3      0.4     -0.3
Import volumes                         4.5      5.0      1.3

Average earnings                       2.6      2.8       1.1
Private consumption deflator           1.5      0.3      1.2
RPDI                                   3.6      4.1      1.4
Unemployment, %                        6.2      5.3      4.9
General Govt, balance as % of GDP     -4.9     -4.3     -5.0
General Govt, debt as % of GDP (b)   103.0    104.1    105.3

Current account as % of GDP           -2.1     -2.4     -2.4

                                                               Average
                                     2017     2018     2019    2020-24

GDP                                    2.3      2.7      2.6       2.2

Consumption                            2.8      2.7      2.7       1.7
Investment : housing                   1.8      5.3      6.4       3.6
           : business                  4.7      5.5      5.2       3.1
Government : consumption               0.1      1.4      1.5       1.6
           : investment                0.1      1.7      1.2       1.6
Stockbuilding (a)                     -0.1      0.0      0.0       0.0
Total domestic demand                  2.4      3.0      2.9       1.9

Export volumes                         3.4      4.9      4.2       3.8
Import volumes                         4.0      6.3      5.8       2.1

Average earnings                       1.6      2.9      3.0       3.1
Private consumption deflator           1.7      2.3      2.1       2.2
RPDI                                    1.1     2.3      2.5       1.4
Unemployment, %                        4.3      4.1      4.1       4.8
General Govt, balance as % of GDP     -3.6     -5.4     -5.3      -3.9
General Govt, debt as % of GDP (b)   103.2    103.4    104.0     102.7

Current account as % of GDP           -2.4     -3.1     -3.4      -3.3

Note: (a) Change as a percentage of GDP. (b) End-of-year basis.

Table B5. Canada

Percentage change

                                    2014     2015    2016    2017

GDP                                  2.9      1.0     1.4     3.0

Consumption                          2.6      2.2     2.3     3.4
Investment : housing                 2.2      3.8     3.3     3.1
           : business                4.5    -11.0    -9.2     2.7
Government : consumption             0.5      1.6     2.2     2.2
           : investment             -3.4      0.3     5.1     3.8
Stockbuilding (a)                   -0.4     -0.2    -0.2     0.7
Total domestic demand                1.8      0.3     1.0     3.8

Export volumes                       5.9      3.5     1.0     1.0
Import volumes                       2.3      0.7    -1.0     3.6

Average earnings                     3.2      1.9     1.0     2.2
Private consumption deflator         1.9      1.1     0.9     1.1
RPDI                                 1.3      3.4     1.5     3.6
Unemployment, %                      6.9      6.9     7.0     6.3
General Govt, balance as % of GDP    0.2     -0.1    -1.1    -1.0
General Govt, debt as % of GDMP     91.1     97.8    96.6    95.6

Current account as % of GDP         -2.4     -3.6    -3.2    -3.0

                                                    Average
                                    2018    2019    2020-24

GDP                                  2.6     2.3        1.7

Consumption                          2.8     1.7        1.2
Investment : housing                 3.7     2.9        2.7
           : business                4.8     2.2        0.8
Government : consumption             2.2     1.9        1.7
           : investment              5.2     2.8        1.9
Stockbuilding (a)                    0.0     0.0        0.0
Total domestic demand                3.0     1.9        1.4

Export volumes                       3.7     6.3        3.1
Import volumes                       4.8     4.8        2.2

Average earnings                     3.0     3.1        3.5
Private consumption deflator         2.3     2.3        2.1
RPDI                                 2.4     1.6        1.2
Unemployment, %                      5.8     5.8        6.0
General Govt, balance as % of GDP   -1.0    -1.0       -1.4
General Govt, debt as % of GDMP     91.6    88.2       82.7

Current account as % of GDP         -2.5    -1.8       -0.9

Note: (a) Change as a percentage of GDP.
(b) End-of-year basis; Maastricht definition.

Table B6. Japan

Percentage change

                                2014     2015     2016

GDP                              0.3      1.4      0.9
Consumption                     -0.9      0.0      0.1
Investment : housing            -4.0     -1.2      5.6
           : business            5.2      3.4      0.6
Government : consumption         0.5      1.5      1.3
           : investment          0.6     -1.3      0.1
Stockbuilding (a)                0.1      0.3     -0.2
Total domestic demand            0.3      1.0      0.4

Export volumes                   9.3      3.0      1.3
Import volumes                   8.2      0.7     -1.9

Average earnings                 0.9      0.9      1.7
Private consumption deflator     2.0      0.4     -0.5
RPDI                            -1.7      0.8      2.3
Unemployment, %                  3.6      3.4      3.1
Govt, balance as % of GDP       -5.4     -3.5     -4.6
Govt, debt as % of GDP (b)     213.0    213.9    216.8

Current account as % of GDP      0.8      3.0      3.7

                                                          Average
                                2017     2018     2019    2020-24

GDP                              1.7      1.2      0.9        0.9
Consumption                      1.0      0.5      0.4        1.1
Investment : housing             2.7     -0.7      1.4        3.6
           : business            3.0      3.3      1.3        1.6
Government : consumption         0.1      0.0      0.0        0.3
           : investment          1.3     -0.1      0.2        0.3
Stockbuilding (a)               -0.1      0.3      0.0        0.0
Total domestic demand            1.2      1.0      0.5        1.1

Export volumes                   6.8      5.9      4.4        3.4
Import volumes                   3.6      5.0      2.2        4.0

Average earnings                 0.9      1.3      2.3        2.0
Private consumption deflator     0.2      0.8      1.3        1.3
RPDI                             1.6      0.1      0.6        1.3
Unemployment, %                  2.8      2.4      3.0        3.3
Govt, balance as % of GDP       -4.8     -4.2     -4.0       -3.9
Govt, debt as % of GDP (b)     218.2    220.9    219.6      214.1

Current account as % of GDP      4.0      3.5      3.7        4.8

Note: (a) Change as a percentage of GDP. (b) End-of-year basis.

Table B7. Euro Area
Percentage change

                              2014    2015    2016

GDP                            1.4     2.0     1.8
Consumption                    0.9     1.8     1.9
Private investment             2.3     3.2     3.4
Government : consumption       0.7     1.3     1.8
           : investment       -0.7     2.9      1.1
Stockbuilding (a)              0.3     0.0    -0.1
Total domestic demand          1.3     2.0     2.0

Export volumes                 4.6     6.1     3.4
Import volumes                 4.9     6.5     4.8

Average earnings               1.3     1.4     1.5
Harmonised consumer prices     0.4     0.0     0.2
RPDI                           0.8     1.3     1.9
Unemployment, %               11.6    10.9    10.0
Govt, balance as % of GDP     -2.6    -2.1    -1.5
Govt, debt as % of GDP (b)    92.5    90.6    89.6

Current account as % of GDP    2.4     3.2     3.4

                                                      Average
                              2017    2018    2019    2020-24

GDP                            2.5     2.3     1.9        1.4
Consumption                    1.7     1.8     1.7        1.2
Private investment             4.7     4.6     3.5        2.0
Government : consumption       1.2     1.5     1.4        1.3
           : investment        1.7     2.6     2.6         1.1
Stockbuilding (a)              0.0     0.0     0.0        0.0
Total domestic demand          2.1     2.2     2.0        1.4

Export volumes                 5.3     4.8     3.5        2.5
Import volumes                 4.3     4.9     4.0        2.7

Average earnings               1.4     2.1     2.3        2.7
Harmonised consumer prices     1.5     1.6     1.6        1.6
RPDI                           2.1     1.7     2.1        1.6
Unemployment, %                9.1     8.4     8.0        7.9
Govt, balance as % of GDP     -0.7    -0.5    -0.5       -1.4
Govt, debt as % of GDP (b)    86.9    83.6    80.8       75.4

Current account as % of GDP    3.5     3.5     3.4        3.4

Note: (a) Change as a percentage of GDP.
(b) End-of-year basis; Maastricht definition.

Table B8. Germany

Percentage change

                              2014    2015    2016    2017

GDP                            1.9     1.5     1.9     2.5

Consumption                    1.0     1.6     1.9     2.1
Investment : housing           3.1    -1.2     3.8     3.6
           : business          4.8     1.4     2.5     4.0
Government : consumption       1.5     2.9     3.7     1.6
           : investment       -1.2     4.5     2.6     4.6
Stockbuilding (a)             -0.3    -0.3    -0.1     0.0
Total domestic demand          1.3     1.5     2.4     2.4

Export volumes                 4.5     4.7     2.4     5.3
Import volumes                 3.5     5.2     3.8     5.6

Average earnings               2.5     3.0     2.9     2.5
Harmonised consumer prices     0.8     0.1     0.4     1.7
RPDI                           1.5     1.9     2.1     2.4
Unemployment, %                5.0     4.7     4.2     3.8
Govt, balance as % of GDP      0.3     0.6     0.8     I.I
Govt, debt as % of GDP (b)    74.7    71.0    68.2    64.1

Current account as % of GDP    7.5     9.0     8.5     8.1

                                              Average
                              2018    2019    2020-24

GDP                            2.4     1.9        1.2

Consumption                    2.4     2.1        0.6
Investment : housing           1.6     2.0        1.7
           : business          4.3     3.2        1.4
Government : consumption       1.8     1.4        0.8
           : investment        5.0     6.5        0.1
Stockbuilding (a)              0.2     0.0        0.0
Total domestic demand          2.8     2.2        0.8

Export volumes                 5.3     4.2        2.7
Import volumes                 6.6     5.3        2.2

Average earnings               3.0     2.5        2.6
Harmonised consumer prices     1.7     1.7        1.6
RPDI                           1.3     1.7        0.8
Unemployment, %                3.6     3.6        4.0
Govt, balance as % of GDP      0.9     0.5       -0.6
Govt, debt as % of GDP (b)    59.6    56.2       49.9

Current account as % of GDP    7.9     7.5        7.4

Note: (a) Change as a percentage of GDP.
(b) End-of-year basis; Maastricht definition.

Table B9. France

Percentage change

                               2014    2015    2016    2017

GDP                             1.0     1.0      1.1    2.0
Consumption                     0.7     1.3     2.1     1.3
Investment : housing           -3.0    -2.1     2.4     5.3
           : business           2.9     3.1     3.6     4.4
Government : consumption        1.3     1.1     1.2     1.6
           : investment        -5.4    -3.0    -0.1    -1.0
Stockbuilding (a)               0.7     0.3    -0.1     0.4
Total domestic demand           1.5     1.5     1.9     2.3

Export volumes                  3.4     4.0     1.9     3.3
Import volumes                  4.8     5.5     4.2     4.1

Average earnings                1.5     0.3     1.6     2.1
Harmonised consumer prices      0.6     0.1     0.3     1.2
RPDI                            0.7     1.2     2.0     1.6
Unemployment, %                10.3    10.4    10.1     9.4
Govt, balance as % of GDP      -3.9    -3.6    -3.4    -2.6
Govt, debt as % of GDP (b)     94.9    95.8    96.6    96.7

Current account as % of GDP    -1.3    -0.4    -0.9    -1.2

                                               Average
                               2018    2019    2020-24

GDP                             1.9     1.9        1.5
Consumption                     1.4     1.8        1.5
Investment : housing            3.4     5.2        6.5
           : business           4.5     3.6        2.0
Government : consumption        1.4     1.2        1.7
           : investment         1.8     1.6        1.8
Stockbuilding (a)              -0.3     0.0        0.0
Total domestic demand           1.6     2.0        1.9

Export volumes                  5.2     4.1        2.4
Import volumes                  3.7     4.3        3.3

Average earnings                1.9     1.8        3.1
Harmonised consumer prices      1.6     1.4        1.7
RPDI                            1.6     1.9        2.0
Unemployment, %                 8.9     8.4        7.3
Govt, balance as % of GDP      -1.9    -1.7       -2.2
Govt, debt as % of GDP (b)     95.2    93.7       89.7

Current account as % of GDP    -0.8    -0.5       -1.0

Note: (a) Change as a percentage of GDP.
(b) End-of-year basis; Maastricht definition.

Table B10. Italy
Percentage change

                               2014     2015     2016

GDP                             0.2      0.8      1.0

Consumption                     0.2      1.9      1.4
Investment : housing           -6.8     -1.7      2.9
           : business           0.6      4.0      4.3
Government : consumption       -0.7     -0.6      0.6
           : investment        -5.4     -1.2     -1.0
Stockbuilding (a)               0.7      0.0     -0.3
Total domestic demand           0.3      1.4      1.3

Export volumes                  2.4      4.2      2.6
Import volumes                  3.0      6.6      3.8

Average earnings                0.4      0.6      0.2
Harmonised consumer prices      0.2      0.1     -0.1
RPDI                            0.5      0.5      1.4
Unemployment, %                12.6    1 1.9     11.7
Govt, balance as % of GDP      -3.0     -2.6     -2.5
Govt, debt as % of GDP (b)    131.7    131.6    131.9

Current account as % of GDP     1.9      1.5      2.7

                                                         Average
                               2017     2018     2019    2020-24

GDP                             1.5      1.4      1.3        1.2

Consumption                     1.3      0.9      0.6        0.7
Investment : housing            2.2      2.9      2.0        1.7
           : business           5.6      7.2      2.1        1.7
Government : consumption        0.1      0.9      1.1        0.9
           : investment        -2.5      2.9      2.8        1.0
Stockbuilding (a)              -0.2     -0.4      0.0        0.0
Total domestic demand           1.3      1.3      1.0        0.9

Export volumes                  6.0      3.9      2.7        2.4
Import volumes                  5.7      4.2      1.7        1.7

Average earnings               -0.4      1.4      2.5        1.9
Harmonised consumer prices      1.3      1.3      1.5        1.4
RPDI                            1.2      1.8      2.3        1.0
Unemployment, %                11.3     10.8     10.5       10.5
Govt, balance as % of GDP      -1.6     -1.1     -1.0       -1.9
Govt, debt as % of GDP (b)    132.1    128.2    124.7      118.7

Current account as % of GDP     3.0      3.1      3.9        4.9

Note: (a) Change as a percentage of GDP.
(b) End-of-year basis; Maastricht definition.

Table B11. Spain
Percentage change

                                2014    2015    2016

GDP                              1.4     3.4     3.3

Consumption                      1.5     3.0     3.0
Investment : housing            11.3    -1.0     4.4
           : business           -2.5     7.7     3.2
Government : consumption        -0.3     2.1     0.8
           : investment          8.8    16.5     2.2
Stockbuilding (a)                0.2     0.4     0.0
Total domestic demand            2.0     4.0     2.6

Export volumes                   4.3     4.2     4.8
Import volumes                   6.6     5.9     2.7

Average earnings                -0.1     1.9     0.4
Harmonised consumer prices      -0.2    -0.6    -0.3
RPDI                             1.2     2.3     1.9
Unemployment, %                 24.5    22.1    19.6
Govt, balance as % of GDP       -6.0    -5.3    -4.5
Govt, debt as % of GDP (b)     100.4    99.4    99.0

Current account as % of GDP      1.0      1.1    1.9

                                                        Average
                                2017    2018    2019    2020-24

GDP                              3.1     2.5     2.0        1.7

Consumption                      2.4     2.3     1.8        1.4
Investment : housing             8.3     4.6     3.0        3.8
           : business            3.8     4.5     2.8        2.8
Government : consumption         1.6     1.4     1.8        1.9
           : investment          2.5    -0.1     1.8        1.9
Stockbuilding (a)                0.1     0.1     0.0        0.0
Total domestic demand            2.9     2.4     2.0        1.9

Export volumes                   5.0     3.3     3.8        2.6
Import volumes                   4.7     3.1     3.9        3.3

Average earnings                 0.7     1.1     2.0        2.9
Harmonised consumer prices       2.0     1.7     1.5        1.6
RPDI                             1.5     2.1     2.4        1.7
Unemployment, %                 17.2    15.0    13.2       13.1
Govt, balance as % of GDP       -3.3    -2.1    -1.8       -2.2
Govt, debt as % of GDP (b)      97.5    94.7    92.4       87.9

Current account as % of GDP      2.0     1.7     2.3        2.1

Note: (a) Change as a percentage of GDP.
(b) End-of-year basis; Maastricht definition.

Caption: Figure 1. World GDP growth and its components

Caption: Figure 2. Consumer price inflation

Caption: Figure 3. Stock prices in the US, Europe and Japan

Caption: Figure 4. Shiller cyclically adjusted price-earnings ratio for the S&P 500

Caption: Figure 5. US: GDP growth and inflation

Caption: Figure 6. US: Unemployment and labour force participation rate

Caption: Figure 7. Canada: Headline and core inflation

Caption: Figure 8. Euro Area: exchange rate (US$ per one euro)

Caption: Figure 9. Euro Area: GDP growth and inflation

Caption: Figure 10. Effect of the German fiscal stimulus on annual GDP growth (difference from base)

Caption: Figure 11. France: GDP growth and inflation

Caption: Figure 12. Italy: GDP growth and inflation

Caption: Figure 13. Spain: GDP growth and inflation

Caption: Figure 14. Japan: labour market pressures

Caption: Figure 15. China: Change in money supply (M2)

Caption: Figure 16. China: GDP growth and inflation

Caption: Figure 17. Russia: GDP growth and inflation

Caption: Figure 18. Effectively applied weighted average tariffs

Caption: Figure 19. Brazil: GDP growth and inflation

Caption: Figure A1. 10-year government bond yields

Caption: Figure A2. Spreads over 10-year German government bond yields

Caption: Figure A3. Corporate bond spreads. Spread between BAA corporate and 10-year government bond yields

Caption: Figure A4. Effective exchange rates

Caption: Figure A5. Oil prices

Caption: Figure A6. Share prices

Caption: Figure Bl. World GDP is estimated to have expanded by 4 per cent (year-on-year) in the fourth quarter of 2017

Caption: Figure B2. NIESR estimates that world trade grew by 4.2 per cent (year-on-year) in 2017Q4

Caption: Figure B3. China is not expected to become the world's biggest importer of goods and services before 2023

Caption: Figure B4. Since 2014, on a PPP basis, China has remained the world's largest economy

Table 1. Forecast summary

Percentage change

              Real GDP (a)

          World   OECD   China

2008-13    3.3    0.8     9.1
2014       3.6    2.2     7.3
2015       3.4    2.5     6.9
2016       3.2    1.8     6.7
2017       3.7    2.6     6.9
2018       3.9    2.4     6.6
2019       3.8    2.3     6.3
2020-24    3.6    1.9     5.7

          Private consumption
                deflator

          OECD    Euro    USA
                  Area

2008-13    1.8    1.5     1.7
2014       1.6    0.5     1.5
2015       0.8    0.3     0.3
2016       1.1    0.4     1.2
2017       2.1    1.4     1.7
2018       2.5    1.6     2.3
2019       2.3    1.6     2.1
2020-24    2.2    1.6     2.2

                Real GDP (a)

          EU-28    Euro      USA
                   Area

2008-13    0.0     -0.3      0.8
2014       1.8      1.4      2.6
2015       2.2      2.0      2.9
2016       1.9      1.8      1.5
2017       2.5      2.5      2.3
2018       2.2      2.3      2.7
2019       1.9      1.9      2.6
2020-24    1.5      1.4      2.2

            Private consumption
                  deflator

          Japan   Germany   France

2008-13   -0.7      1.3      1.1
2014       2.0      0.9      0.1
2015       0.4      0.6      0.3
2016      -0.5      0.6     -0.1
2017       0.2      1.7      0.9
2018       0.8      1.7      1.5
2019       1.3      1.7      1.4
2020-24    1.3      1.6      1.7

                Real GDP (a)

          Japan   Germany   France

2008-13    0.2      0.7      0.3
2014       0.3      1.9      1.0
2015       1.4      1.5      1.0
2016       0.9      1.9      1.1
2017       1.7      2.5      2.0
2018       1.2      2.4      1.9
2019       0.9      1.9      1.9
2020-24    0.9      1.2      1.5

            Private consumption
                 deflator

          Italy     UK      Canada

2008-13    1.9      2.5      1.3
2014       0.3      1.9      1.9
2015       0.2      0.6      1.1
2016       0.1      1.4      0.9
2017       1.2      2.0      1.1
2018       1.3      2.2      2.3
2019       1.5      2.4      2.3
2020-24    1.4      2.3      2.1

               Real GDP (a)           World
                                    trade (b)
          Italy    UK     Canada

2008-13   -1.5     0.3     1.4        3.2
2014       0.2     3.1     2.9        3.9
2015       0.8     2.3     1.0        2.7
2016       1.0     1.9     1.4        2.6
2017       1.5     1.8     3.0        4.8
2018       1.4     1.4     2.6        5.3
2019       1.3     1.7     2.3        5.1
2020-24    1.2     1.7     1.7        4.0

            Interest rates (c)        Oil
                                    ($ per
           USA    Japan    Euro     barrel)
                           Area       (d)

2008-13    0.6     0.2     1.5       95.5
2014       0.3     0.1     0.2       99.6
2015       0.3     0.1     0.1       52.8
2016       0.5    -0.1     0.0       43.4
2017       1.1    -0.1     0.0       53.5
20/8       1.9    -0.1     0.0       64.8
20/9       2.6    -0.1     0.1       67.6
2020-24    3.6     0.3     1.2       71.0

Notes: Forecast produced using the NiGEM model, (a) GDP
growth at market prices. Regional aggregates are based
on PPP shares, 201 I reference year, (b) Trade in goods
and services, (c) Central bank intervention rate, period
average, (d) Average of Dubai and Brent spot prices.

* All questions and comments related to the forecast
and its underlying assumptions should be addressed to
Iana Liadze (i.liadze@niesr.ac.uk). We would like to thank
Jagjit Chadha and Garry Young for helpful comments and
Yanitsa Kazalova for compiling the database underlying
the forecast. The forecast was completed on 27 April, 2018.
Exchange rate, interest rates and equity price assumptions
are based on information available to 11 April 2018.
Unless otherwise specified, the source of all data reported
in tables and figures is the NiGEM database and NIESR
forecast baseline.