Economic growth in the industrialized countries in 1995 is projected at 3 percent. The upturn in Europe will broaden its base; Japan is recovering from a severe recession; activity in the U.S. should slow gradually from its peak. Generally, growth will not be strong enough to make substantial inroads into unemployment, particularly in Europe. Inflation may rise in the U.S., but will remain low elsewhere. The high level of interest rates should not choke off the upswing but may threaten its sustainability in the medium term. While in 1993 and early 1994 the international business cycle was clearly de-synchronized, growth rates among the G7 countries are expected to converge towards 3 percent in 1995. In the U.S. the 1994 boom, with real GDP growth attaining 3¾ percent, was driven mainly by low interest rates stimulating private investment. Unemployment has fallen substantially to a rate of 5.8 percent of the labor force. Despite strong employment growth and high capacity utilization, inflation has remained moderate. From now on, endogenous cyclical factors as well as monetary restriction should dampen activity. In Europe, the export-induced upswing has proved surprisingly strong. Growth is particularly vigorous in Finland, Ireland, Denmark, and the U.K. In Italy and France activity is picking up momentum. In Germany, the upturn is also firmly on track, broadening its base from exports and construction towards machinery and equipment investment. Private consumption, though, is projected to remain subdued because of wage moderation and a rising tax burden. In spite of high real interest rates and restrictive fiscal policy across Europe, business cycle recovery is expected to continue into 1996. GDP growth of 3 percent (1995) or 3.3 percent (1996) will, however, not suffice to bring unemployment substantially down from its 1994 rate of 11.6 percent. Above-average rates remain in Spain, Ireland, and France; the Scandinavian countries, where joblessness has risen fastest (from generally low levels) may experience the same racheting-up phenomenon which has become typical for Europe. Developments are mixed in eastern Europe. The transformation process has made substantial progress in Poland, Slovenia, Hungary, and the Czech Republic, all of which have managed to re-orient foreign trade, aided by recovery in the West and the undervaluation of their own currencies. Slovakia is still fighting structural problems. In Russia, Ukraine, and other successor states of the former Soviet Union output will continue falling rapidly in 1995. The Japanese economy is recovering gradually from the recession of the last years. Stimulated by low interest rates, tax cuts, and public works domestic demand is gradually heading upwards. Real GDP for 1995 and 1996 is projected at 2.5 percent and 3.3 percent, respectively. The South-East Asian economies continue booming, with average GDP growth reaching almost 10 percent. Exports will benefit from rising domestic demand in Japan and the strong yen. World trade volumes are expected to expand at a strong pace of 8 percent per annum, with possible additional stimulation being provided by the effects of the GATT Uruguay Round agreements.