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Philippe d’Arvisenet Global Chief Economist ECONOMIC RESEARCH DEPARTMENT. THE WORLD ECONOMIC OUTLOOK Conferences BNP PARIBAS, Thursday 6th October, 2005. Chart 1. Chart 2. Chart 3. Chart 4. I - UNITED STATES. STRONG ACTIVITY … GDP growth reached 4.2 % in 2004
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Philippe d’ArvisenetGlobal Chief Economist ECONOMIC RESEARCH DEPARTMENT THE WORLD ECONOMIC OUTLOOK Conferences BNP PARIBAS, Thursday 6th October, 2005
STRONG ACTIVITY … • GDP growth reached 4.2 % in 2004 • We expect about 3.5 % in 2005 and 2006 • Katrina : lower activity end 2005, acceleration at the beginning of 2006 • Growth components : • consumption moderating somewhat as a result of high oil prices (not much risk related to the level in indebtedness, job creations and compensations favourably oriented, long rates remain at a record low) • investment to remain strong (sound financial situation of the corporate sector, higher rates of capacity utilisation, favourable financing conditions, manufacturing mini cycle bottomed out) • exports supported by the lower dollar but impacted by weakness in European investment.
… INFLATION PRESSURES SHOULD REMAIN CONTAINED • wages: towards an impact of the unemployment getting closer to NAIRU • productivity gains: in line with their long term trend … NORMALISATION IN MONETARY POLICY WILL BE ACHIEVED SOON.
… IMBALANCES • fiscal policy, the cycle delivers: fiscal deficit will be significantly below expectation • long term problems persist ... • current account widening • the dollar is likely to remain under pressure
what leading indicators tell us : • growth below potential once again in 2005 and 2006 • domestic demand is lagging; high unemployment, low increase in real wages impact households confidence and consumption • the financial situation of the corporate sector has strongly improved, and external demand is likely to be sustained, but the weak domestic demand will prevent a strong recovery in investment • the renewed strength of the euro will dampen the contribution of external demand to GDP growth • significant and structural national differences across member countries
fiscal policies under stress; the stability pact has been watered down, several countries (Italy, Portugal, Greece …) have entered the EDP (Excessive Deficit Procedure), France and Germany likely to overshoot the ceiling of 3% of GDP in 2005 • monetary policy to remain accommodative • core inflation outlook is still favorable and growth disappointing • no price-wage spiral despite oil shock • liquidity is abundant with consequences on asset prices, but with no general push to domestic demand and consumption prices as yet • the appetite to implement structural reforms remains mixed • towards a lasting wait & see stance