International Economic Outlook

INTERNATIONAL ECONOMIC OUTLOOK By Evangelos Otto Simos GLOBAL BROADENING IN CAPITAL EXPENDITURES Several adverse factors that in the past have impeded global economic growth did not derail the world economy from its long-term trend in 2005. Substantive lingering geopolitical uncertainties with terrorist attacks, an energy shock with oil prices rising by more than one-third, and a reversal of monetary policy in the United States — the leader of the global business cycle — where shortterm interest rates more than doubled, were all absorbed by gains in productivity and increased globalization in trade and investment. With preliminary numbers on output growth for the last quarter of the year, the world economy is estimated to have expanded by 3.3 percent in 2005, following 3.8-percent growth in 2004. Worldwide output growth was not synchronized among major economic and geographic blocs. In North America, real output grew by an average annual growth rate of 3.4 percent in 2005, a natural pullback from an unsustainable 4.1-percent growth rate recorded in 2004. Real output growth in the Euro Area slowed down to an annual rate of 1.5 percent in 2005 from 1.8 percent in 2004. Economic ...