Chapter I presents a general review of economic developments in 1972 including an attempt to assess the position of the economy in relation to its full employment potential. Chapter II includes the usual short-term forecast of likely developments over the next eighteen months together with a less detailed assessment of prospects over the rather longer term. Recent developments in and short-term prospects for various industries within the industrial production index are dealt with in some detail in Chapter III, while the final chapter contains our annual review and forecasts for the World Economy.

Three months ago we drew attention to the difficulty of interpreting the current economic indicators. Since then the situation has, if anything, become worse. The underlying trends in the economy would in any case have remained obscure because of the distortions caused by strikes, but in addition, the discrepancy between the three estimates of GDP became even greater in the third quarter of 1972 (chart 1). The change in output then as compared with a year earlier is given variously as minus 1/3, plus 2 1/4 or plus 3½ per cent, by the expenditure, income and output estimates respectively.

In 1968, the last year in which output grew rapidly, the index of industrial production advanced by more than 5 per cent. Throughout 1970 and 1971 output grew by less than 1 per cent per annum. The revival started in the spring of 1972 after a substantial drop in production caused by the miners' strike (chart 1). By the last quarter the index of industrial production was 7 per cent above the level recorded a year earlier though output for the year as a whole was probably only some 3 per cent up on 1971. The index covering manufacturing industry alone followed a similar trend. Last February we forecast 3.7 per cent growth in industrial production but two major strikes—the miners' in the winter and the building workers' in the summer—prevented output from growing as rapidly as it might otherwise have done.

1972 proved to be the most buoyant year for the world economy since 1966. Growth was faster than expected a year ago in nearly all the industrial countries, but particularly in Japan, and for the OECD countries collectively the aggregate rise in output was probably about 5 3/4 per cent.

These price index numbers were introduced in the very first issue of the Economic Review in 1959 with the aim of illustrating the changes in the market prices of commodities exported by primary producing countries. The original system was revised in 1965; this note describes further major revisions.