The world economy has been experiencing a boom in 2000. Demand and production have increased in real terms by about 5¼ percent in the USA, 3½ percent in the European Union, and 2 percent even in Japan, where the economy had been stagnating for almost a decade. A relatively favourable monetary framework and a vigorous expansion of domestic demand have contributed to this development. Currently, however, a growing number of indicators are pointing to a slow-down of economic activity, the major contributing factor being the increase of crude oil prices with the related redistribution of purchasing power at the expense of the industrialised countries. The more restrictive orientation of monetary policy also has a dampening effect on economic growth. As for the USA, the majority of international observers are expecting a "soft landing" with growth rates of over 3 percent, although the risk of a downturn has clearly increased. In Europe, the cyclical upswing set in with a certain time lag in 1999-2000 after the slump in the wake of the Asian and Russian crises had been overcome. The high rate of economic growth had a very positive effect on public households and the labour market – with employment growing strongly in 2000 (+1.6 percent) and the rate of unemployment dropping to 8.5 percent. The beginning slow-down of economic growth at such an early point in time is considered to be a cause for concern. The most recent EU and OECD forecasts – with estimates of real economic growth in 2001 of around 3.1 percent and 3.0 percent, respectively – tend to be rather optimistic for the EU countries. Nevertheless, rising oil prices, which will lead to higher inflation – presumably over 2 percent in the EU in 2000 and 2001 – and a loss of purchasing power for private households, may result in a stronger dampening of demand. Moreover, monetary policy has reacted more quickly than in the past by increasing interest rates. However, given the fact that the phase of fiscal consolidation has been completed, a certain amount of economic stimulation is to be expected from European fiscal policy in 2001, above all through major tax cuts in Germany and France. Assuming that the upward movement of crude oil prices in the world markets is going to level off in the coming quarters, and provided that interest- and exchange-rate developments do not result in a significant deterioration of the monetary framework, the slow-down of growth in Europe in 2001 may turn out to be of a temporary nature.
