International Economic Outlook

INTERNATIONAL ECONOMIC OUTLOOK By Evangelos Otto Simos, Ph.D. WILL OIL-PRICE SHOCK DERAIL GLOBAL GROWTH? - I. Global Assessment and Outlook Following a $10 per barrel jump in 2004 from the previous year to an annual average of $41 per barrel, oil prices headed gradually up again this year averaging $50 in the first quarter, $53 in the second quarter and hit the 68 dollar mark per barrel in late August. The “historical” rule of thumb is that for every 10 US dollar increase in oil prices, real worldwide output would decline by 0.5 percent and global inflation would accelerate on average by 0.5 percent in the following year. In the first half of 2005, the global economy continued a remarkable expansion despite the adverse effects of higher oil prices. As we predicted in the spring forecast, “currency realignments and high-tech driven productivity improvements have reshaped the global economic landscape leading to economic policies, particularly monetary policies, unparallel to past experiences.” With preliminary output growth figures for the second quarter of 2005 now available, the overall global picture for 2005 becomes more fastidious. Quarterly national accounts confirm ...