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Euro Area Economy Gains Strength

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    The world economy continues to expand, albeit at a slightly more subdued pace. In the U.S.A., the growth deceleration was primarily attributable to lower investment and weaker consumer spending. In response to these developments, the Federal Reserve kept the key interest rate steady in August 2006, after raising it 17 consecutive times over the past two years. In Japan, the economic recovery gathered enough steam for the Bank of Japan to hike interest rates in July for the first time in six years. China’s and Southeast Asia’s high growth rates remained broadly unchanged; inflationary pressures have increased in several countries of the region, above all because of the high oil price. The euro area economy continued to recover, with GDP growth exceeding expectations in the second quarter of 2006. Recent forecasts suggest that growth – which was carried primarily by domestic demand – will exceed potential growth in 2006, and unemployment is expected to decline markedly. Even though the short-term outlook for price stability has deteriorated owing to an increase in indirect taxes in Germany, the upward pressure on consumer prices may be expected to ease, as the oil price has decreased significantly since mid-August after triggering a rise in inflation.

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    Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Monetary Policy & the Economy.

    Volume (Year): (2006)
    Issue (Month): 3 ()
    Pages: 6-23

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    Handle: RePEc:onb:oenbmp:y:2006:i:3:b:1
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