The global economy’s robust growth during 2006 is expected to continue in the near term, although the pace of growth may moderate to just over 4 % in 2007, compared to 5 % in 2006. Slower growth is foreseen in the U.S. economy, where rises in interest rates will impact the housing sector and consumer spending. The Eurozone is expected to grow at a slightly lower rate than the 2.7 % achieved in 2006. In the Eurozone’s largest economy, Germany, the economy will continue to benefit from the factors which contributed to solid growth last year: strong exports, corporate confidence, capital investment, and recovery in the construction sector; nevertheless, the recent 3 % increase in Value Added Tax rate may dampen consumer spending.

Emerging growth economies will again be important contributors to global economic performance. China and India are expected to grow at 9 % and 8 % respectively, sustaining the strong momentum achieved in 2006, underpinning continued demand for energy and other commodities. Growth in other emerging economies, and energy-producing nations, is also expected to remain strong. The leading corporations of these economies will be increasingly visible as global players in their markets, while economic growth and sustained industrialization will continue to drive personal wealth in these nations. The pace of globalization will continue to accelerate, characterized by increased volumes of traded goods, growing international capital flows, and markets will become more globally integrated. Global trade imbalances, with surpluses in major emerging economies and energy producers, offsetting a substantial current account deficit in the U.S., will again be a feature of the world economy.

Several risks exist in the global economy. Major geopolitical events, including war, natural disasters, political instability or significant terrorist activity, have the potential to destabilize financial markets. Stronger-than-expected monetary tightening, worsening trade imbalances, a harder-than-expected landing in the U.S. economy, a significant rise in energy prices, and sharper-than-expected interest rate rises, could all dampen prospects for economic growth across the world.