Against that background, the view was that, while the US economy might be in for a bumpy ride over the next few months, associated for example with inventory adjustment in the motor industry, the likely outcome for this year as a whole is that the US economy will continue to grow by perhaps 2-3%, and that the overall world economy – helped by steady growth in the Eurozone – would again this year grow probably somewhat above its longer-term average rate. That, certainly, is a slowdown in the recent rate of growth – and a downward revision of earlier expectations of growth for the current year; but it is not a downturn in the sense of contracting activity. On this view, the slowdown in prospect would have relatively benign effects in terms of the longer term sustainability of the global economic expansion; and developments so far have already had positive effects both in terms of their impact on the world oil price, and in terms of their impact on the pattern of exchange rates, notably by reducing the exaggerated weakness of the euro. On that basis the global economic environment should provide a reasonable background for our own economy. We – and our partners in the European Union – would be relatively little affected by the US economic slowdown. The world economy as a whole would certainly be helped by the somewhat softer oil price – though I appreciate there may be mixed views on that up here in Scotland.
This slowdown has been reflected in a fall in equity prices – including a sharp fall in the previously hugely overblown “tech-heavy” NASDAQ index; and this in turn has contributed to a typically rapid escalation in the florid language of commentators, from slowdown, to downturn or recession, to possible slump (though I haven’t yet seen meltdown as we did in 1998), which many of the commentators appear to regard as near-synonyms. Of course it is always possible that it will come to this – no-one has a crystal ball – and it goes without saying that we are all watching what’s happening very carefully. But that is not my own view of the most likely outcome, nor that of my central bank colleagues from around the world when we met in Basel a week ago. We met in the wake of the Fed’s move to cut interest rates which was widely welcomed as timely and appropriate, demonstrating sensitivity to the possibility of a spiralling decline in financial market and business and consumer confidence. We noted, too, that in announcing its move the Fed had made a point of emphasising its expectation of continuing relatively strong productivity growth, giving it more room for manoeuvre than it would otherwise have.