The strong global recovery actually disguises major regional differences. While growth in the USA, U.K. and Japan is sustained, robust and inflation-free, the economy in the remaining countries of Western Europe is progressing at a very hesitant pace. In the USA, the forecast of 3 percent for 1997 appears to be quite safe, thanks to the surprisingly high growth rate at the outset of the year; for 1998, real GDP growth is expected to slow down to 2 percent. For Japan, predictions are that the halting recovery will be followed by a growth rate of 2¼ percent for 1997, which should accelerate to 2¾ percent in 1998. After the slowdown in 1996, world trade should accelerate to a growth rate of 7½ percent by 1998. Europe is in the thralls of Economic and Monetary Union. Most EU member states need to make considerable efforts to meet the convergence criteria for joining the third stage of EMU. Fiscal consolidation measures have led to an amazing convergence of inflation and interest rates as well as budget balances, but at the same time collective and synchronous fiscal restrictions have substantially dampened internal demand in Europe. This further aggravated a labor market situation which, for structural reasons, was already more distressed in Europe than in the USA. With the exceptions of Finland, Ireland, Luxembourg, the Netherlands, Norway and Spain, European countries expect to achieve growth rates of about 2½ percent. They hope to do slightly better next year, primarily fueled by an increase in exports and private investments. The CEE countries grow at about double the pace of those in western Europe, but their improvement is inadequate to ensure rapid transformation, delaying convergence of income levels with those in the West. Union-wide unemployment will decline only marginally until 1998, to a rate just above 10 percent, or double that of the USA. In Europe, improvement is expected to be more rapid in the U.K., the Netherlands, Denmark and Ireland – exactly those countries whose growth rates are above the European average. Quiescent prices for raw materials, minor rises in wages and fiscal consolidation have effectively repressed inflation in the industrialized countries. For this and the next year, inflation should not exceed 2½ percent on average in most industrialized countries.