1. 1 World outlookOxford Economic Forecasting World Macroeconomic outlook November 2005 Tel: (44) 1865 268900 Email:johnwalker@oef.co.uk John Walker Oxford Economic Forecasting

2. 2 World outlookOxford Economic Forecasting World GDP Growth

3. 3 World outlookOxford Economic Forecasting Key Issues for world Impact of high oil prices Will US and China continue to be strong? The Dollar

4. 4 World outlookOxford Economic Forecasting

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6. 6 World outlookOxford Economic Forecasting GDP growth forecasts (%yr)

7. 7 World outlookOxford Economic Forecasting GDP growth forecasts (%yr)

8. 8 World outlookOxford Economic Forecasting WHY NO REAL EFFECTS ? i)It is more of a demand shock than a supply shock (given strong demand in the United States and China) ii) The price build-up has been much more gradual than on earlier occasions iii)Oil consumption per unit of GDP has declined significantly iv)Neither price nor wage inflation have (so far) followed but remember: i)The lags can be quite long ii)Absorption in many producing countries remains low iii)Wages could still respond, at least in the fully employed U.S.

9. 9 World outlookOxford Economic Forecasting CHANGES IN OIL PRICES First oil shock: 1973 Q.3 – 1974 Q.1 3.84 times 2 quarters Second oil shock 1979 Q.1 – 1981 Q.1 2.54 times 8 quarters Third oil shock 2001 Q.4 – 2005 Q.4 3.62 times 16 quarters (1998 Q.4 – 2005 Q.4 6.31 times 28 quarters)

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12. 12 World outlookOxford Economic Forecasting Impact of Katrina Loss of energy production and refining Other direct output losses Damage to physical capital – insured losses Extra Federal spending Rebound associated with reconstruction Impact on oil prices

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15. 15 World outlookOxford Economic Forecasting Net Acquisitions of Financial Assets

16. 16 World outlookOxford Economic Forecasting Household Assets

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18. 18 World outlookOxford Economic Forecasting

19. 19 World outlookOxford Economic Forecasting Changes in the dollar

20. 20 World outlookOxford Economic Forecasting Bilateral Trade Flow

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22. 22 World outlookOxford Economic Forecasting US financial account in 2004 (US$bn)

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24. 24 World outlookOxford Economic Forecasting