Following four quarters of exceptionally rapid expansion, growth in the US, China and Japan, the world's three largest economies in purchasing power parity terms, slowed in the second quarter of 2004. However, with growth remaining near trend levels in all three economies, this should not be viewed as an imminent collapse of the global recovery. On the contrary, we continue to expect world growth to stabilise at about 4-4¼ per cent per annum from 2004-2006, which is slightly faster than our estimate of trend global growth of just less than 4 per cent per annum. We see the world economy approaching full capacity output and, unless there is a shock to demand, a further acceleration in global growth is unlikely in the near term. In the second quarter of 2004, we also saw a slight dip in the Euro Area recovery, mainly driven by a drop in consumer expenditure in Italy, while growth in India and the Far East also eased slightly. Brazil, on the other hand, continued to strengthen following the recession in the first half of 2003, although recent strikes in demand for higher wages are likely to restrain the acceleration in the second half of the year. Looking forward, we expect to see some rebalancing of world growth by 2006, as the US and Japan slow to more sustainable levels and the recovery in the Euro Area becomes more broadly based. The only significant revisions to our forecast for the major economies since July include an upward revision to the outlook for Japan this year, and an upward revision to the outlook for inflation in the Euro Area in 2005. We have revised our projections for growth in Japan up by 0.4 percentage points, to 4 per cent. This follows the upward revision of 1 percentage point made in July, and primarily stems from an upward revision to growth in Chinese import demand this year.