A PROFITING PLANET

The world’s gross domestic product increased an estimated 3.2 percent in 2005, down from 3.8 percent last year, according to the World Bank. Growth is expected to be stable in 2006, before strengthening somewhat in 2007.

"High oil prices cut into the income of oil importers, but the expansion remained strong, partly because of favourable conditions in financial markets, including still low inflation (and) interest rates," the bank said in a November report called "Prospects for the Global Economy.’’

REMAINING PITFALLS

Pitfalls, however, remain.

"Tightness in the oil market, the threat of even higher fuel prices, and the possibility that interest rates may rise pose major threats to the expansion," the report said.

In its updated outlook last month, the Organisation for Economic Cooperation and Development said the world’s 30 industrialised economies have "skated" and "sailed" through oil and hurricane shocks and are set for overall growth of 2.7 this year and 2.9 percent in 2006.

The Paris-based global economic think tank predicted that the 12-nation euro zone is to set to enjoy a "moderate recovery," lifting its forecast to 1.4 percent this year and 2.1 percent in 2006.

Despite the improved outlook for the 12 countries sharing the euro, the estimate for 2005 would mark a slowdown after growth of 1.8 percent in 2004, the OECD said.

Asian economies should continue to show solid growth in 2006, and China will likely let its currency, the yuan, appreciate further to tackle problems caused by its current account surplus.

"The ongoing boom in non-OECD Asia (such as China) should continue to provide an important impetus to the Australian, Korean and New Zealand economies," the OECD said.

ADVANCED ECONOMIES

The International Monetary Fund (IMF) projects GDP growth for the world’s advanced economies in Asia, Europe and North America at 2.5 percent in 2005 and 2.7 percent next year.

But "high and volatile oil prices remain a significant global risk," particularly in the event of a disruption in oil supply.

Oil prices briefly surged to an all-time high of $70.85 a barrel on August 30, after Hurricane Katrina battered the US Gulf Coast. They have moderated since then and are now trading around $60 a barrel.

The energy shock has put big money into the hands of oil-exporting nations.

The surge in oil prices took around $300 billion in 2005 out of the mainly oil importing economies of the OECD and transferred it to oil-producing countries. Much of that money, however, has been fuelling the global economy as demand for manufactured goods and services from the Middle East increased.

"With price stability being maintained, a powerful impetus arising from the Asian and US economies and the respending of oil exporters’ higher revenues, the case for a prolonged world expansion . looks plausible," assuming that oil prices won’t shoot up again, said OECD Chief Economist Jean-Philippe Cotis.

‘ROBUST’

DEVELOPMENT

In the world’s developing economies, growth remained "very robust," at an estimated 5.9 percent in 2005 and 5.7 percent in 2006, the World Bank predicted.

In part this reflects the strong performance of China and India, where output continued to expand at rapid rates. But high oil prices, rising interest rates and building inflationary pressures are expected to restrain growth in most developing regions in 2006 and 2007, the bank said.

In the United States, despite turbulence from hurricanes and high energy prices, the economy is expected to log respectable growth in 2005 and 2006, a panel of 45 business economists said in a recent survey. The economy, as measured by GDP, is projected to grow by 3.6 percent in 2005 and 3.3 percent in 2006, according to the National Association for Business Economics.

"The hurricane season failed to blow the economy off course," Carl Tannenbaum, the association’s vice president and chief economist at LaSalle Bank in Chicago, said in the November 2005 NABE Outlook.

"Our forecasters expect strong real GDP growth of 3.3 percent next year, albeit with some changes in the composition of that growth. This should be enough to prompt more rate increases from the Federal Reserve," he said.