The oddest thing about the world in the past three years has been the complete disjuncture between politics and economics. Politics stinks, with wars in Afghanistan, Iraq and now Lebanon, with tension high between allies let alone enemies. But the economics has been fragrant, with three straight years of rapid global growth of 4.5% or more each year, the best three-year sequence in at least 30.

Faced with some good news, you can always trust economists to predict that bad news must be just around the corner. And so it is with the fashionable current prediction of a coming global recession. You never really know what is around the corner: that is the trouble with forecasting. But it is hard to see any good reasons why there should now be a global recession. An American one, perhaps. But whatever some Americans may believe, they aren't the world.

Yes, oil prices have risen a tad since the Hizbullah kidnappings. BP has had to shut down a pipeline in Alaska too. Yet given that they have risen 25% in a year and roughly sevenfold in all since their 1998 nadir it is hard to see why the latest rise should prove some sort of tipping point. What is genuinely happening is that central bank interest rates are on the rise, in an effort to tighten up monetary policy after five loose years (in America, western Europe and Japan, at least) and to put a cap on inflation. But short-term interest rates at 3-6% in America and Europe, and barely above zero in Japan are hardly signs of apocalypse soon.

What is really happening is that America, at last, shows signs of slowing down. It couldn't go on growing at 3.5-4% a year, living on debt, consumer spending and rising house prices for ever. Higher interest rates are halting the housing market and will probably dampen consumer spending too. That is why the Federal Reserve Board yesterday chose to stop raising its rates, following 17 successive rises. But if inflation continues to rise, rates will probably rise further even if the economy slows. If consumers truly go on strike and companies cut their investments, this might lead to an American recession. Britain's experience suggests otherwise, however: here, a period of flat or even falling house prices produced a slower economy, but not a slump.

Even if it did produce a true recession in the world's largest economy, it need not mean doom for the rest of the world. It accounts for 30% of world output, that's all. Other countries do trade with each other, too, rather than just shipping to Wal-Mart. Intra-Asian trade has been one of the boom stories of recent years. Japan, the world's second-largest economy, is recovering strongly. Even the euro area has been showing signs of life recently. Although an American recession would hurt the rest of us, the pain should be bearable.

Indeed, it would be good news, not bad. Economists and other pundits have been demanding an "adjustment" from the US for years, to rid the world of its huge financial imbalances. That is what a US recession would be: a much-needed adjustment.



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