National Institute Economic Review

Commentary: The Stern Review's Economics of Climate Change

When economists analyse public policy, they take two sets of considerations into account. First, they identify the ways in which the world might work (the ways in which people would choose under various circumstances, the pathways Nature chooses, and so on). Once that task is done, they are able to chart the consequences (perhaps long-termconsequences) of alternative policies. Secondly, they value those consequences so as to be able to judge the relative desirabilities of the alternative policies. The former set of exercises involves description, while the latter involves evaluation.

Monetary policy and global imbalances

The US current account imbalance is unlikely to be improved by monetary expansion in the Euro Area, the UK and Japan. It would at best give respite to the US for two years, as the increase in demand from abroad would cause a current account improvement in the US ahead of the impacts of the appreciation of the dollar these monetary expansions abroad would induce. This conclusion is independent of the style of forward looking macro model used, be it a New Keynesian model or a full dynamic general equilibrium model.

The World Economy

¥ The world economy will continue to expand vigorously, growing by 5.0 per cent in 2007 and by 4.8 per cent in 2008.<br />

¥ American GDP growth will slow to 2.9 per cent in 2007 and 2.5 per cent in 2008.<br />

¥ Economic growth in the Euro Area will slow to 2.2 per cent in 2007 and 2.1 per cent in 2008.<br />

¥ Japanese growth will pick up to 2.4 per cent in 2007 and 2.5 per cent in 2008.<br />

UK economy forecast

¥ A quarter-point rise in Bank rate to 5.5 per cent should ensure that CPI inflation falls close to the Government's 2.0 per cent target by the end of 2007. <br>

¥ The claimant jobless count will rise this year above a million for the first time since 2000.<br />

¥ The economy is expected to grow by 2.8 per cent this year, boosted by a recovery in personal consumption growth to 2.6 per cent.<br>

¥ GDP growth will slow to 2.4 per cent in 2008 as domestic demand growth decelerates.<br>

National Institute Economic Review - January 2007

The National Institute Economic Review is the quarterly journal of the National Institute of Economic and Social Research, published quarterly in January, April, July and October of each year. Each edition includes detailed forecasts of both UK and World economies, commentary on current issues, a comprehensive statistical appendix and articles by NIESR researchers and external authors. <br><br>

National Institute Economic Review - October 2006

The National Institute Economic Review is the quarterly journal of the National Institute of Economic and Social Research, published quarterly in January, April, July and October of each year. Each edition includes detailed forecasts of both UK and World economies, commentary on current issues, a comprehensive statistical appendix and articles by NIESR researchers and external authors.<br><br />

The World Economy

¥ The global growth rate is expected to exceed 5 per cent this year with growth continuing at above 4_ per cent per annum into 2008.<br />

¥ Over the second half of this decade France, Germany and Japan are expected to perform better than the United States.<br />

¥ Adjustment in the United States housing market is unlikely to lead to a recession there.<br />

¥ Investment rates in China are very high. A sharp reduction in Chinese investment would have a clear impact on growth in the developed countries.<br />

Immigration and its effects

Immigration since 1997 has expanded UK GDP by about 3 per cent.

In 2004/5 it contributed about 1 percentage point to the overall growth of 5.3 per cent in this period.

11.6 per cent of 25-34 year olds in the UK have arrived since 1997.

Immigrants from Central and Eastern Europe in 2004 and 2005 have been younger than earlier immigrants and more likely to work in low-skill jobs.

Unless immigrants make disproportionate demands on the welfare system, the structure of taxation means that they are net contributors to the rest of the economy.

The World Economy

¥ Global GDP growth will slow from 5.1 per cent in 2004 to 4.2 per cent in 2005; while world trade growth will slow from 9.1 per cent to 6.3 per cent.<br />

¥ The Oil price is expected to remain above $50 a barrel, although in real terms it remains well below the highs of the early 1980s.<br />

¥ Nearly 25 per cent of the deterioration of the US current account since 1997 can be attributed to net trade in petroleum products, and reflects the oil price.<br />

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