The US economy continued to expand strongly in the first half of this year. GDP rose by 2 per cent compared to the latter half of last year, broadly in line with the pace of growth observed throughout 1997. The unemployment rate fell to its lowest level since 1970, with private sector demand continuing to reflect the impact of the sustained appreciation in equity prices since 1994. We expect GDP growth to be a little under 3½ per cent this year. Recent events have sharply changed the short-term economic outlook for the coming months. Growth is now projected to slow significantly, with domestic demand pressures easing and external demand remaining weak. The correction in equity prices and the tighter financial conditions facing many companies should begin to exert a significant drag on economic growth, in spite of likely further relaxation in the stance of monetary policy. GDP is expected to rise by around 1½ per cent both in 1999 and in the year 2000. If credit market conditions were to tighten further, or asset prices to show a renewed decline, then the economy could well move close to outright recession by the end of next year.