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NIESR: Prospects for the World Economy

In the past two years global economic growth has been boosted by tailwinds from accommodative financial conditions and the US fiscal stimulus. Global growth has hit a cyclical peak, and the pace is now slowing. Increased uncertainty over trade and tariffs, higher US interest rates and slowing growth in China are moderating global growth prospects. 

  • Recent data suggests that the global growth cycle has probably peaked. We forecast world GDP growth of around 3.5 per cent a year over the next two years.
  • On that basis, the second decade of the 21st century will have seen sustained global GDP growth.
  • Tariff increases and trade disputes seem likely to act as a drag on the global economic outlook, with a bias towards slower growth as a consequence.
  • Despite faster wage growth in advanced economies, the recent fall in oil prices has reduced the risks of inflation overshooting targets. We expect central banks to reduce monetary accommodation very gradually.

The average annual pace of GDP growth in the second decade of the 21st century (estimated at 3.8 per cent) has been slower than in the ten years before the Great Recession (4.2 per cent), partly reflecting the slowdown in economic growth in China, which was running at a 10 per cent annual pace in the early years of the last decade.

As GDP growth in the advanced economies has continued, signs of high capacity usage and labour market tightness have increased. A slowing in growth and the reduction in oil prices late last year are likely to restrain inflationary pressure, so monetary authorities are likely to unwind policy accommodation gradually, mindful of the economic uncertainties.

Higher US policy interest rates and the stronger US dollar could start to place pressures on economies which have built up US dollar debt. With equity markets having seen falls last year in February and December, and with volatility rising in these episodes, the global economy remains vulnerable to shocks in confidence or sentiment. In the US the extended length of the economic expansion is starting to be perceived as a possible future risk factor.

Higher US policy interest rates and the stronger US dollar could start to place pressures on economies which have built up US dollar debt. With equity markets having seen falls last year in February and December, and with volatility rising in these episodes, the global economy remains vulnerable to shocks in confidence or sentiment. In the US the extended length of the economic expansion is starting to be perceived as a possible future risk factor

With economic and geo-political risks, we expect global GDP growth in the near-term to be around 3.5 per cent, maintaining the long expansion of the global economy. Factoring in demographic trends and a further reduction in the pace of growth in China, we expect a similar pace of global growth in the medium term.

Notes for editors:

The full forecast for the global economy will be published in the National Institute Economic Review no. 247 February 2019 on Wednesday 6 February. Details of NIESR’s previous global economic forecast can be found here.

For a full copy of the world economic forecast or to arrange interviews, please contact the NIESR Press Office: Paola Buonadonna on 020 7654 1923 / p.buonadonna@niesr.ac.uk

For technical questions related to the forecast, please contact:

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./) at subscription@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

 

Original article link: https://www.niesr.ac.uk/media/press-release-prospects-world-economy-13638

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