The world economy [May 1986]

Developments in the first part of 1986 continue to be dominated by the sharp fall in the price of oil and the deceleration of the US economy. With the lack of agreement on pricing and output policy among OPEC members the outlook for oil markets remains uncertain. The present low oil prices provide benefits to oil - importing countries in the form of falls in industrial costs and improvements in trade balances. In the short-run it may have also helped trigger reductions in interest rates. The longer OPEC fails to exercise effective control over oil markets, the greater these benefits will be. However, while there is the resulting possibility of growth without the usual inflationary consequences, the world economy remains characterised by major imbalances.