World overview and European sovereign debt

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Publisher: Sage Publications Ltd. (UK)
Document Type: Article
Length: 2,894 words
Lexile Measure: 1690L

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Short-tem inflationary pressures have risen on a global scale in recent months and, given the source of the impulse is commodity markets, this dampens the prospects for growth in 2011 in most countries. Global food prices have been under pressure since July 2010, reflecting poor harvests in many parts of the world. Metals prices have also risen rapidly, while non-food agricultural price inflation accelerated towards the end of the year. We expect average food and other agricultural prices in 2011 to be more than 25 per cent higher than they were in 2010, while metals prices are expected to be more than 30 per cent above last year's average level, as shown in figure 1. The price of oil exhibited moderate inflation through September 2010, but rose sharply in the final quarter of the year. The rise in the price of oil may be a reflection of demand pressures from countries such as China and India, as well as the recovery in demand from advanced economies, while the weakness of the US dollar and an expected tightening of regulation following recent oil spills may also be adding to price pressures. The price of Brent crude currently stands at over $98 per barrel, roughly $19 per barrel higher than was priced into futures markets three months ago. Barrell, Delannoy and Holland discuss the macroeconomic implications of the recent rise in the oil price elsewhere in this Review. If sustained we expect this to reduce growth in the OECD by about 1/2 per cent this year. The impact on oil-intensive emerging economies such as China and India may be slightly greater, while oil exporters gain from the high price.

For the most part the rise in commodity prices does not yet appear to have spread into wage setting in the advanced economies, although real wages in France and Japan have risen more rapidly than elsewhere. Employment prospects remain weak in many countries, with the unemployment rate edging up in the final quarter of 2010 in Denmark, France, Italy, Austria, Spain, the UK and the US. This largely offsets the risks of a wage-price spiral developing, but monetary authorities should keep a close watch on wage agreements over the next several months. Wage bargainers in energy importing countries may be aware that a rise in oil prices reduces the real wage they can achieve as it changes the terms of trade against them.

Global inflation is expected to accelerate to 4 1/2 per cent in 2011, from 4 per cent last year, while consumer price inflation in the OECD group of economies is forecast to rise to 2.2 per cent in 2011, compared to our forecast of 2 per cent in October 2010. Heightened price pressures have compounded the partial withdrawal of economic stimulus packages, primarily in Europe and China, and NIESR's estimates suggest that world GDP growth slowed to an annualised rate of 3.7 per cent in the second half of 2010, from 5.7 per cent in the first half of the...

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Gale Document Number: GALE|A250677124