Economist Intelligence Unit Updates 2008/09 Global Economic Forecast

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Improvement in 2008 US growth forecast but 2009 still sluggish. Euro zone rate of inflation is likely to rise. Oil prices are set to peak in the third quarter.

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The Economist Intelligence Unit today released its updated forecast for the world economy. Its monthly Global Outlook report lays out the publisher's forecasts for the world's most important markets.

Key findings of the report are:
First-quarter real GDP growth in the US was revised up in the second data release to an annualised rate of 0.9%, from 0.6% previously. This partly reflected a sharp downward revision of imports of goods and services, from growth previously to contraction. In reaction, the Economist Intelligence Unit has revised its US growth forecast for 2008 to 1.2%, from 0.8% previously. This does not, however, reflect a change in our broad view of US growth prospects, or our view that conditions in the US are now recessionary. Growth in 2009 will be sluggish, at 1.1%.

Inflationary pressures are rising more quickly than expected in the euro zone, despite recent sharp euro appreciation. We have therefore revised our inflation forecast for the euro zone in 2008 to 3.3%, from 2.8% previously. In the light of this, we have also revised our monetary policy forecast for the region and expect the European Central Bank (ECB) to raise its policy rate to 4.25% at its July meeting and to hold this rate throughout 2009. We have also trimmed our euro zone growth forecast in 2009 to 1.5%, from 1.7% previously.

The revised ECB forecast and recent comments by the Federal Reserve highlighting concerns about the weakness of the US dollar and inflation have led us to revise our US monetary policy forecast too. We now expect the Fed to hold its policy rate at 2% until the third quarter of 2009, when tightening will begin. Previously we had expected the policy rate to fall to 1.5% by end-2008. In view of the Fed's currency and inflation concerns, a sharper than forecast tightening of policy by the ECB could also prompt the Fed to follow suit. We have also revised US average inflation in 2008 to 4% from 3.7% previously.

We have revised our forecast for average prices for dated Brent Blend to US$120/barrel in 2008 and US$110/b in 2009, from US$107/b in both years previously. This reflects the higher than expected spike in oil prices in the second quarter and our revised view that oil prices will peak at an average of US$140/b in the third quarter of this year and ease thereafter as demand slackens.

The complete Global Outlook report is published monthly by the Economist Intelligence Unit. The full report contains in-depth forecasts for regions and countries around the world. For more information, go to http://www.countryanalysis.eiu.com.

About the Economist Intelligence Unit
The Economist Intelligence Unit is the business information arm of The Economist Group, publisher of The Economist. Through our global network of about 650 analysts, we continuously assess and forecast political, economic and business conditions in 200 countries. As the world's leading provider of country intelligence, we help executives make better business decisions by providing timely, reliable and impartial analysis on worldwide market trends and business strategies.

Press enquiries:
Economist Intelligence Unit
Joanne McKenna, Press Liaison, +44 (0)20 7576 8188

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