Executive Directors noted that the global expansion remains broadly on track, underpinned by generally supportive macroeconomic policies and notably benign financial market conditions. Following last year's performance—the strongest in three decades—growth is expected to moderate to a more sustainable pace in 2005. At the same time, Directors observed that the expansion has become less balanced. Growth has been strong in the United States, China, and most emerging market and developing countries, and disappointing in Europe and Japan. Globally, inflationary pressures remain relatively subdued. With monetary tightening cycles under way in most cyclically advanced economies and generally moderate inflationary expectations, inflation should remain well contained. Directors considered that inflation risks will nevertheless need careful monitoring, with due regard to rising unit labor costs in many industrial countries as labor markets tighten, and to monetary policy implementation in a number of emerging markets receiving strong external inflows that, in the absence of greater exchange rate flexibility, may lead to inflationary pressures.
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