WIREDGOV

NIESR’s global economic forecast

• The world economy grew by 3.0 per cent in 2015, as indicated in our last two forecasts. It is now projected to grow only slightly faster this year, by 3.2 per cent, and by 3.8 per cent in 2017.
• In the advanced economies, the modest and uneven recovery is expected to continue, while many major emerging market economies continue to face significant challenges, with slower growth in some cases and deep recessions in others.
• The renewed decline in global oil prices in the past three months, accompanied by sharp falls in equity prices worldwide, have increased uncertainty about the global economic outlook.
• Recent falls in oil and other global commodity prices will lower inflation again in the short term, but should boost global demand while increasing the challenges faced by commodity producers.

Recent declines in equity prices may be expected to reduce global demand and activity in the short term, while the fall in oil prices should have the opposite effect, while also lowering inflation. Our forecast reflects the implications of developments up to mid-January. It also reflects recent economic data, which have been less favourable in terms of growth than we assumed in November.

Recent developments have highlighted several risks: First, the downturn in oil and other commodity prices carries both downside and upside risks. It will directly impede the rise in inflation toward official targets and increase the short-term risk of deflation. On the other hand, it may provide a larger boost to global demand than our forecast assumes. Key to which of these factors dominate will be whether the recent fall is driven by supply or demand factors. Our view is that recent moves are in large part supply-driven and so represent a positive for global demand. However, the observed positive correlation with falls in equity markets suggests there are fears that it may signal weaker demand – particularly in China.

Second, recent declines in equity prices may go further, reducing confidence and household wealth and raising the cost of finance.

Third, rising interest rates in the United States will tend to increase capital outflows from emerging markets and exacerbate the policy challenges they face. At the same time, further appreciation of the US dollar would increase the burden of dollar-denominated liabilities to unhedged foreign borrowers.

Fourth, there are uncertainties associated with the efficiency and speed of integration of migrants into communities and the labour force in the European Union member countries and the consequent impact on European macroeconomy.

Notes:

The forecast for the world economy is published in the National Institute Economic Review no. 235 February 2016. Details of NIESR’s previous global economic forecast can be found here.

For a full copy of the global economic forecast or to arrange interviews, please contact the NIESR Press Office: Luca Pieri on 020 7654 1931 / l.pieri@niesr.ac.uk    

To discuss the forecast or for interviews, please contact:

• James Warren on +44 (0) 20 7654 1909 / j.warren@niesr.ac.uk
• Iana Liadze on +44 (0) 20 7654 1904 / i.liadze@niesr.ac.uk
• Simon Kirby on +44 (0)20 7654 1916 / s.kirby@niesr.ac.uk

The National Institute Economic Review is the quarterly journal of the National Institute of Economic and Social Research (NIESR). Published in February, May, August and November, it is available from Sage Publications Ltd (http://ner.sagepub.com./) atsubscription@sagepub.co.uk.

Further details of NIESR’s activities can be seen on http://www.niesr.ac.uk or by contacting enquiries@niesr.ac.uk Switchboard Telephone Number: +44 (0) 207 222 7665