|The global economy expanded
strongly in 2004 despite the sharp rise in oil prices, though growth
was perceptibly weaker in the second half of the year.
The strong U.S. economy lifted global growth, with American household
and corporate spending remaining buoyant. Inflationary pressures increased
as the economy gained strength and following three years of USD depreciation.
In response, the Federal Reserve (Fed) raised the Federal Funds Rate
from 1% in June 2004 to 2.75% in March 2005. In Japan, private investment
and export of goods and services picked up strongly last year, boosting
real GDP growth to its strongest level in eight years. Similarly,
the European economies expanded at a faster pace in 2004. For both
Japan and Europe, growth was significantly weaker in the second half
of the year.
The non-Japan Asian economies performed well last year on the back
of a favourable external environment. In Northeast Asia, the Chinese
economy continued to grow at a robust pace. The rest of that region
began the year on a firm footing, but growth slowed in the second
half due partly to the downturn in the electronics industry. In Southeast
Asia, strong domestic demand cushioned the impact of slower export
growth in the second half of the year.
The world economy started well in 2005. The U.S. economy remained
resilient in spite of high oil prices, while both the Japanese and
European economies rebounded strongly in the first quarter of the
year. China continued to expand at a rapid pace and led the growth
in non-Japan Asia.