NIESR trims global growth forecast to 3.3%

10 Feb 15
The National Institute of Economic and Social Research has cut its forecast for the global economy citing low inflation, the decline in crude oil prices and continuing weakness in the eurozone.

By | 10 February 2015

The National Institute of Economic and Social Research has cut its forecast for the global economy citing low inflation, the decline in crude oil prices and continuing weakness in the eurozone. 

The London-based think-tank now expects the global economy to expand by 3.3% this year, down slightly from the 3.5% it predicted in November. Although growth is expected to pick up next year, the NIESR trimmed its 2016 prediction from 3.8% to 3.6%.

Growth was weaker than expected in the fourth quarter of 2014 and inflation had fallen further below target in almost all developed countries, the NIESR said.

This led to additional policy actions in several economies to ease monetary conditions and NIESR economists have welcomed the major expansion of asset purchases by the European Central Bank.

‘Developments in the past three months have been dominated by the steep decline in crude oil prices,’ said the NIESR global economic forecast.

‘If the lower prices are sustained, and if the decline is not allowed to exacerbate the threat of deflation, this should provide a significant boost to growth in countries that are net oil importers and for the global economy.’

Although recent data on economic activity have generally been weak, the notable exception was the US where the pick-up in growth that occurred after a drop in GDP early last year had been largely maintained.

In the eurozone, growth has remained too weak to make significant further inroads into the high level of unemployment, while in Japan, GDP declined in the third quarter of last year – the second consecutive quarterly drop.

Among emerging market economies, the gradual slowing of growth in China has continued, broadly as expected. In Brazil, there has been little sign of significant economic recovery since the recession in the first half of last year, the NIESR forecast highlighted.

Taking into account these and other developments, including the current economic downturn in Russia and political risks in Greece, ‘our forecast of global growth in 2015 and 2016 has been revised down by 0.2 percentage point in both years'.

Moderate global growth, similar in pace to the past two years, seems likely to continue in the short run, the NIESR said.

The organisation recommends that governments should promote growth by boosting demand and implement reforms that remove impediments to investment, business formation, and job creation.

At the same time, there is substantial potential for increased government investment, financed by borrowing, to boost both demand and potential output in many if not most advanced economies, it said. 

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