The World Economy: Globalisation and its impact on world real interest rates

Abstract

Our estimates indicate that global output increased by 4.7 per cent in 2005. This followed an expansion of 5.2 per cent in 2004, and we expect further annual rises of 4¾ and 4½ per cent in 2006 and 2007, respectively. Global growth averaged just less than 3½ per cent per annum between 1975 and 2003, and exceeded 4½ per cent in only five of these years. We have not seen an extended global expansion of the magnitude expected for 2004–7 since the early 1970s. While growth in the OECD economies is expected to average 2.9 per cent per annum between 2004 and 2007, which is slightly higher than the average annual rate of 2.7 per cent experienced in 1975–2003, the bulk of the recent global strength comes from outside the OECD, as illustrated in figure 1. The acceleration of global growth can be attributed partly to developments in formerly centrally planned economies, such as Russia and other regions of the former Soviet Union. Severe recessions in these regions associated with the introduction of market forces and economic transition restrained world growth in the early 1990s. A strong rebound in these economies since the late 1990s has recently been further strengthened by rising prices for oil and gas. The former Soviet Union supplied 14 per cent of global oil in 2005 and holds over 30 per cent of proven global natural gas reserves. The high oil price is also expected to support growth in OPEC member states as well as other oil producing nations in South America and Africa. However, output growth in these regions has historically been relatively volatile, and the outlook for these economies remains a risk to our central forecast for world growth.