It is increasingly clear that the world economy has been recovering relatively strongly from a pause in activity at the end of 1995. The recovery has also been relatively well spread around the globe, with Japan displaying the strongest growth amongst the larger economies, in part because of the effects of the depreciation of the yen, but also because government policy was expansionary throughout last year. Although growth rates in Europe appear low in 1996, with Germany and France both recording growth of less than 1½ per cent, growth through the year has generally been strong. It appears there is still some spare capacity in Europe, and hence growth can be expected to strengthen further into 1998, at least within continental Europe. The US economy has been growing at or above capacity for several years; in the fourth quarter of last year output rose by a further 1 per cent, with growth through the year of over 3 per cent. Domestic demand also rose strongly in Canada and Mexico in the latter half of last year. Growth in the NAFTA economies is expected to strengthen in 1997, but to slow into 1998 in the aftermath of moves to tighten monetary policy. Overall, as can be seen from Table 1, we expect a period of above trend growth and low inflation in the majority of the OECD countries.