The growth of foreign trade in the Asian area slackened markedly in the first half of 2004 under the influence of a tightening of economic polices in China but recovered somewhat in the second half of the year. The rebound has been sufficiently strong to ensure that output growth in China is unlikely to slow this year. In 2005, the increase in oil prices will weigh particularly heavily on this group of economies. At the same time, inflation may pick up somewhat, especially outside of China -- a development that adds to the pressure for a change in the exchange rate policies of a number of economies. South America is set to grow by more than 4 per cent in 2004. Growth in Brazil remains particularly robust and the economy has become less vulnerable to external shocks. Area-wide growth has become more balanced across sectors. Private investment and consumption are picking up, taking over from net exports as the main drivers of growth. Inflation is expected to remain tame. Imports surged in the first half of the year in the major economies, albeit from a low level, and are likely to continue to grow more rapidly than exports. The external current account surplus is therefore expected to shrink in 2005-06. Russia’s oil-driven growth is set to continue at relatively high rates, boosted by very strong domestic demand and expansionary fiscal policy. However, growth will slow over the projection period, owing partly to slower growth of export volumes while imports continue to rise rapidly. A loss of confidence in the future course of structural policy reform, could also weaken investment growth. Nonetheless, prices of oil and other commodities will benefit Russia and other hydrocarbon producers among the Newly Independent States. Russian growth will also benefit other states in the region, which depend largely on trade with, and, in some cases, remittances from, Russia. Growth in South-eastern Europe, which largely depends on developments in the European Union, is set to continue, but at rates well below those found among the Newly Independent States. ...