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2005 OECD Economic Outlook, Volume 2005 Issue 1

image of OECD Economic Outlook, Volume 2005 Issue 1

Presents OECD's assessment of the economic outlook to the end of 2006 for the OECD area and China, Brazil, and the Russian Federation.  It finds that Japan and the US have rebounded but that Europe is lacking in sustained momentum, and it carefully examines why. This issue of the OECD Economic Outlook also includes several medium-term scenarios projecting to 2010. The special chapter covers measuring and assessing underlying inflation.

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Canada

The marked appreciation of the Canadian dollar has continued to restrain activity. The economy may now be operating slightly below potential, although most economic fundamentals have remained sound. Activity is expected to accelerate somewhat in the second half of 2005, once the effects of currency movements have been worked through, before slowing next year. The recent surge in oil prices is boosting headline inflation temporarily this year.

Uncertainties about the impact of the currency appreciation on activity have warranted a pause in monetary policy tightening, but further increases in interest rates will be needed from the second half of 2005 onwards. Regardless of how the current political uncertainties are resolved, fiscal policy needs to remain prudent, with the surplus allocated to paying down public debt while demographics remain favourable.

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