In its latest World Economic Outlook, out on Tuesday, the International Monetary Fund forecasts global economic growth this year at 4.7 per cent. This is 0.5 percentage points higher than an already cheerful forecast in May. If achieved, this would match the growth of 1988 and be as high as in any year since 1984.

The surge is widely shared. The IMF forecasts growth in the high-income countries at 4.2 per cent, with the US once again the leader with an astounding expansion of 5.2 per cent. The European Union is forecast to grow by what would normally be regarded as a healthy 3.4 per cent. Even sluggish Japan is forecast to achieve positive growth of 1.4 per cent.

Developing countries are also back in the race, with overall growth forecast at 5.6 per cent this year, after 3.5 per cent in 1998 and 3.8 per cent in 1999. Asia is in front, with growth forecast at 6.7 per cent. The developing economies of the western hemisphere are forecast to grow by 4.3 per cent. Countries in transition are also recovering strongly. Russia is forecast to achieve 7 per cent - its first good year since the disintegration of the Soviet Union. Yet every silver lining has a cloud. The price of a barrel of crude oil has jumped to close to $35, its highest since the peak of over $40 in October 1990. Prices are now over three times higher than they were at the end of 1998. This surge in oil prices brings back ominous memories. One can identify four periods of rapidly rising prices since the early 1970s: 1973-74; 1979-80; 1990; and 1999-2000. The first three were followed by global economic slowdowns. Is this one going to be different?

Strong economic growth has generated rapid underlying increases in the demand for oil. The symptoms include pressure on stocks of certain products and rising prices. Exacerbating the squeeze has been the increased discipline of the Organisation of Petroleum Exporting Countries. This discipline is explained, in turn, by the abyss into which many of its members peered when the price of a barrel of oil fell below $10 in late 1998.

Yet there are, happily, good reasons for believing that the economic consequences of what has happened so far are likely to prove manageable, at least compared with the calamities of the 1970s.

First and most important, real oil prices are still quite low. At their trough, in late 1998, crude oil prices were far lower in real terms than at any time since the early 1970s. Even today, the real price is less than a third of its 1979 peak and only some 50 per cent higher than during most of the last decade. It is sensible to see the recent rises as a return to normality, with some attendant overshooting.

Second, the high-income countries are far less dependent on oil than three decades ago. Oil imports per unit of gross domestic product have halved and oil use per unit of GDP has fallen 40 per cent.

Third, the inflationary background is quite different. Not only was inflation previously higher and rising, but Japan and continental Europe retain considerable excess capacity this time. Moreover, with central banks committed to price stability, a ruinous wage-price spiral should be avoided.

Nevertheless, the direct impact of what has happened so far is not negligible. The IMF argues that a sustained $5 increase in the price of crude oil, above its reference value of a little over $25 a barrel, would raise the net oil imports of the high-income countries by about $40bn, some 0.2 per cent of aggregate GDP. In many developing countries trade balances would deteriorate by more than l per cent of GDP. Growth in the high-income countries would fall by 0.2 percentage points in the subsequent year, while the annual rate of inflation would rise by between 0.2 and 0.4 percentage points.

If prices were to remain substantially higher than that, the impact would be bigger. But this is unlikely. The most important reason for optimism is that Opec's reference price of $22 to $28 a barrel is what its most important actors wish to happen. This is consistent with the recent decisions to expand supply. More important, Opec's swing producer, Saudi Arabia, is able to expand supply by up to 2m barrels a day and would probably want to do so if prices rose much further, though it would also face pressure to hold back.

Suppliers who are in the market for the long haul are aware of the world's ability to expand supply and conserve energy in the longer term. Proved reserves are as high as they have ever been - far more than they were in the 1970s. Recovery technology is constantly improving. The run up in prices reflects the short-term inflexibility of supply and demand far more than any shortage.

The conclusions, then, are, first, that prices at current levels, albeit a nuisance, are not likely to generate more than a modest economic slowdown and, second, that they are unlikely to go much higher. Both conclusions could prove wrong. A cold winter in the high-income countries, particularly the US, which accounts for a quarter of world consumption, could push prices higher. So, too, could a shock to supply. Moreover, higher energy prices will squeeze profits and may raise inflationary expectations. The combination may undermine today's irrepressible optimism about US prospects, in particular.

What is still more certain is how policymakers should respond. First, the monetary authorities should tolerate a rise in inflation that reflects higher energy prices but not a secondary effect on wages and prices in the economy. Second, managers of official stocks should be prepared to use them to limit the extent of any further rises in prices.

Third, and most important, the temptation for governments of importing countries to reduce taxes on energy products, under popular pressure, should be resisted. Any general reduction in these taxes would tend to shift the scarcity rent to the producers. At present, it is true, the very high taxes on consumption in Europe help keep world prices down and so heap large benefits on gas-guzzling North Americans. So be it. It is not in the interests of Europeans to lower prices to their consumers at the expense of raising the cost of imports to their economies.

Do not panic is the conclusion. This is a price correction that has gone too far. There is a good chance that it will reverse. That is in the interests of the principal oil producers. It is certainly in the interests of the oil consumers. With luck, it is what is going to happen.