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World economic growth at risk if oil prices remain high in 2005

Ottawa, ON -- World economic growth will falter in 2005 if oil prices remain at all-time high levels well into next...


Ottawa, ON — World economic growth will falter in 2005 if oil prices remain at all-time high levels well into next year, according to The Conference Board of Canada’s World Outlook – Autumn 2004.

“Oil prices are the wild card for the world economy,” said Kip Beckman, Principal Research Associate. “Domestic demand for goods and services in major oil-importing countries will slump if households have to spend more on energy products. Business investment spending will suffer as well, should higher energy prices increase costs.”

Despite slower growth during the summer because of rising oil prices and a weaker pace of job creation in the United States, the world economy is forecast to expand by 4% in 2004 — its best performance since 2000.

The outlook calls for real gross domestic product (GDP) growth of 3.1% in 2005. Modest interest rate increases in many of the world’s largest economies will hold inflation in check and support continued growth. Declining oil prices will also contribute to the expansion forecast in 2005. Average West Texas Intermediate oil prices are to ease gradually over the next year. The Organization for Petroleum Exporting Countries (OPEC) has begun to ramp up production, and non-OPEC members, such as Russia, are expanding their capacity.

The U.S. labour market endured sluggish job growth in the summer, but business balance sheets remain robust and profits continue to expand — creating optimism that hiring will increase in upcoming months.

The North American economy will generate solid growth of 3.5% next year and South America’s growth will approach 4% in 2005. Europe’s economy is expected to expand by 2.3% in 2004 and at a similar pace next year. The GDP of the Asia-Pacific region will increase by 5% in 2004, but will weaken slightly in 2005 due to slower growth in Japan. China’s real GDP growth is also expected to moderate somewhat next year because of higher interest rates and other measures taken to contain inflation.

The World Outlook, published four times a year, provides a short-term economic outlook for the world’s major economic region, with a special emphasis on the United States and in-depth analysis of key trends and prospects.