In the most recent Monetary Policy Report published at the beginning of July we were expecting GDP growth in the United States to slow down to around 1.5 per cent a year in 2008 and 2009. I agreed on the whole with the picture of international developments presented in the Monetary Policy Report, but my assessment was that developments in the United States could be even weaker than we were assuming. There is a risk that we will have to lower the forecasts even more in coming reports, particularly the forecasts for 2009. GDP growth in the  BIS Review 100/2008  1  second quarter of 2008 was actually slightly stronger than we had expected. GDP increased by 0.5 per cent compared with the first quarter. Growth in the United States is now largely being upheld by exports alone, which are increasing at a good rate as a result of world growth and the dollar depreciation (compared with the level 2-3 years ago). Domestic demand will on the whole not show any increase in 2008 and 2009. I do not believe that the recovery in domestic demand will get started before the financial system has stabilised and before the fall in US house prices has come to a halt. House prices have continued to fall during the summer. Growth in Europe will also slow down Europe fared better than the United States at the beginning of the year.
This is partly because the financial crisis originated in the United States and the financial market turbulence has not been as severe as there. Another explanation is that the financial balance is better in Europe; public sector finances have improved in recent years and the current account is close to zero. We assumed in the Monetary Policy report that GDP growth in the euro area would slow down to 1.7 per cent in 2008 and 1.2 per cent in 2009, to reach almost 2 per cent in 2010. At the beginning of July we had seen little sign of the slower growth in the statistics on production and in the National Accounts. On the contrary, there had been several positive surprises. However, there were tangible signs of a future slowdown in other types of data, such as corporate and household confidence indicators. The quick figures for the second quarter now indicate that GDP in the euro area declined by 0.2 per cent compared with the first quarter, which was weaker than we had expected. Global growth still strong GDP growth in the world as a whole has been very strong over the last four years, around 5 per cent a year. Not since the early 1970s, prior to the first oil crisis in 1973, have we seen such strong growth in the world for such a long period of time.