In the past few years, constant price increases have attracted much attention to commodity markets. The nominal prices of oil and most metals reached record levels, and their real prices reached the highest level in many years. The recent price surge was due mainly to a strong increase in demand for commodities. This can be attributed to the strong economic growth of the past few years and to the integration of a substantial part of the world population into the global economy and international trade. The price increase was also partly the result of supply side developments, such as the scarcity of spare production and refining capacity. This made the oil price sensitive to every event that had a negative influence on the oil supply, such as the recurrent geopolitical tensions. In recent years, economic growth and inflation in the oil-importing countries have been fairly resistant to the sharp increase in commodity prices, largely thanks to the changes in the monetary policy framework in comparison to the seventies, structural changes in the developed countries, the effect of globalisation and the favourable economic environment. Financial markets expect oil prices to remain at high levels in the short- and medium term. Moreover, according to the International Energy Agency and other observers, high oil prices are also expected to persist in the long term. Metal prices are forecast to ease from their current high levels, mainly as a result of supply side flexibility, as extra capacity can be added quite quickly. In view of the major economic impact of oil prices and the increasing concern about the effect of energy consumption on climate change, the government has an important role in the energy debate. Over the last couple of years there have been some initiatives to establish a common European energy and climate policy.

One of the most remarkable characteristics of the world economy today is the enormous, ever worsening US balance of payments current account deficit, which reached a record level of 5.7 p.c. of GDP in 2004. This has given rise to concerns in academic and political circles regarding the sustainability of the current situation and the potential dangers for the global economy of a sudden, disorderly adjustment. The size of the US current account deficit is not only unprecedented in American post-war history, but it also seems to be exceptional from an international perspective. Moreover, the US deficit contrasts with a surplus in virtually every other region and the problem has consequently taken on a global dimension. The increase in the US current account deficit recorded in the nineties reflects an internal American shortfall in savings. Whereas the private savings-investment equilibrium was restored in 2002 and 2003, the same period saw a huge deficit in the public sector budget. The start of the new millennium brought notable changes in the way the US current account deficit was financed since investments by Asian public authorities in American government debt instruments largely took over the position previously occupied by European private foreign direct investments and investments in equities. It is sometimes put forward that the US, unlike other countries facing similar circumstances, is safeguarded from an attack on its currency because of its prominent role in the international financial system. According to an influential school of thought in economic literature, the current international system can even be seen as a “revived” Bretton Woods system. Indeed, a number of East-Asian countries, including China, use a fixed or quasi-fixed exchange rate against the dollar, which brings to mind an informal dollar standard. Although this set of circumstances has undoubtedly offered various regions in the world a number of mutual benefits during recent years, these exchange rate relations may nevertheless have caused some distortions in US spending, whereas Asian countries have to deal with a growing exchange rate risk on their official reserves. Different scenarios are conceivable to deal with the global imbalances. The results of model simulations show the huge effort required to significantly reduce the US current account deficit which highlights the scale of the problem, emphasising the need for simultaneous economic policy measures in the different economies involved. The concern over global imbalances and the development of exchange rates also feature prominently on the agenda of international forums such as the G7 or G20 meetings. In the statements issued at those meetings, the need for a common approach to tackle the global imbalances is given priority and the belief that excessive exchange rate volatility is not desirable is underlined.