This paper highlights that the first half of 1987 was characterized by considerable uncertainty about the world economic situation and prospects. Following a disappointing growth performance in industrial countries in 1986, and deterioration in the external financial position of many developing countries, signs of sluggishness in some indicators early in 1987 have given rise to concern that economic activity might weaken further in 1987 and next year. Such fears have been aggravated by the persistence of historically large imbalances on current account and increasing trade frictions.

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This paper highlights that the first half of 1987 was characterized by considerable uncertainty about the world economic situation and prospects. Following a disappointing growth performance in industrial countries in 1986, and deterioration in the external financial position of many developing countries, signs of sluggishness in some indicators early in 1987 have given rise to concern that economic activity might weaken further in 1987 and next year. Such fears have been aggravated by the persistence of historically large imbalances on current account and increasing trade frictions.

This paper highlights that the performance of the world economy in the first half of 1988 has been considerably more satisfactory than was expected in the wake of the sharp stock market decline in October 1987. Output in industrial countries has grown strongly, world trade has been robust, and inflation appears to have remained under control. Moreover, the shifts in real trade flows induced by earlier exchange rate movements are at last beginning to have a visible effect on the payments imbalances of the three largest countries.