1.4 The outlook for 2007 is positive. Globally, the major economies are doing well. The US economy has kept up its momentum. Consumer spending has been supported by more stable oil prices, offsetting the effects of a slowdown in the US housing market. Japan is continuing to recover from more than a decade of deflation. The major European economies too, especially Germany, are undertaking reforms and showing improvement after a long period of sluggish growth.
1.5 In Asia, China and India continue to power ahead, pulling the rest of Asia with them. The Southeast Asian economies are growing, although some of them face difficult challenges. Vietnam, in particular, is stepping up its economic reforms, tapping into the forces of globalisation, and growing dramatically.
1.6 On the whole, the global picture for 2007 is positive. But it is not free of risks. A sharp slowdown in the US economy, which could happen if there is a hard landing in the US housing market, remains our biggest external risk. A disruption in global financial markets, for example in response to America’s large external deficits, is another factor that could slow down the global economy. Widening conflict in the Middle East is a significant geopolitical risk we have to look out for, which could disrupt energy supplies and force oil prices up sharply. We must continue to watch these potential threats, and stay ready to respond quickly and decisively.
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