NIESR: Prospects for the World Economy
National Institute Economic Review No. 246 November 2018
- The global economy is set to continue to grow at a pace of slightly below 4 per cent a year in the near term.
- Oil prices have risen further and with some advanced economies appearing to be operating at close to full capacity, there is a risk that inflation will increase. Our expectation is that any rise will be limited
- US tariff increases and confrontational trade rhetoric are adding uncertainty to the global economic outlook, with a bias towards slower growth as a consequence.
- Without a recovery in productivity growth, the pace of economic expansion in the medium term will be slower than at present. Our medium term outlook is for global growth of around 3.5 per cent a year.
We expect growth this year and next to be at a pace close to, but slightly below, 4 per cent. Relatively strong growth does, however, mask some important uncertainties.
If relatively robust growth in the advanced economies continues, signs of increased capacity use and labour market tightness could mount with inflationary pressures building. We expect monetary authorities to be able to unwind policy accommodation gradually and do not expect to see growing inflationary pressures but the possibility of a less gradual path cannot be ruled out.
More restrictive monetary policy in the advanced economies could, especially if it is accompanied by a stronger US dollar, start to place pressures on those in other economies who have built up debt, especially if it is in US dollars. The increase in debt in the expansion phase could act as a transmission mechanism for slowing activity growth.
In addition, the period of stronger global growth and the reduction in unemployment rates in advanced economies may, of themselves, have boosted confidence effects in both economies and financial markets. While these would be regarded as positive, they could lead to a building of potential downside risks. Concerns have been expressed by some about the strong run in equities and the increase in private sector indebtedness creating potential vulnerability to a negative shock.
A key development in the international economy over the past year has been the increase in protectionist rhetoric and tariffs by the US. This has led to retaliatory measures. While there has been some positive news recently with the initial USMCA agreement, it looks likely that the period of increased trade tensions has not ended. The potential is to slow the rate of world trade and economic growth. At present such effects are not substantial, but there remains considerable uncertainty around how this situation will develop.
Even with all the global economic and geo-political environmental uncertainties, we expect growth in the near term to continue at a pace above 3.5 per cent a year, which marks something of a mini-peak in the global growth cycle. We continue to expect the pace of growth to run at around 3.5 per cent a year in the medium term, with the slowing from the current experience reflecting demographic trends generally and a reduction in growth in China as that economy continues its long-term development.
Notes for editors:
The full forecast for the global economy will be published in the National Institute Economic Review no. 246 November 2018 on Wednesday 31 October. 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 / email@example.com
For technical questions related to the forecast, please contact:
- Garry Young on +(44) 0207 6541916 firstname.lastname@example.org
- Iana Liadze on +44 (0)20 7654 1904 / email@example.com
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 firstname.lastname@example.org.
Latest News from
NIESR reacts to the latest ONS CPI inflation statistics15/11/2018 10:43:00
According to figures released this morning by the ONS, consumer price index inflation was unchanged at 2.4 per cent in the year to October 2018.
IEA - Equal Pay Day promotes misleading, inflated gender pay gap figures, says new briefing13/11/2018 09:35:00
The IEA responds to Equal Pay Day campaign
NIESR Monthly GDP Tracker - UK economic growth slows to a more sustainable rate12/11/2018 14:05:00
Our monthly GDP Tracker suggests that the economy will expand by 0.4 per cent in the three months to October and by 0.4 per cent in the final quarter of this year.
IEA - Taxing red meat is the next battleground for the nanny state08/11/2018 10:35:00
The IEA reacts to the proposed 'sin tax' on red meat
IFG - UK must say who will play the role of the European Commission after Brexit08/11/2018 09:35:00
The Government must explain who will take over from Brussels officials in ensuring British ministers and legislators meet their agreed obligations to the EU after Brexit, demands a new report.
Policy Exchange welcomes new Building Beautiful Commission – inspired by our work06/11/2018 12:35:00
Policy Exchange warmly welcomes the Government’s announcement of a new ‘Building Better, Building Beautiful’ Commission to be chaired by Sir Roger Scruton – who co-authored our report Building More, Building Beautiful, first championing the argument that building homes in designs and styles that people support is crucial to solving the housing crisis, and putting the issue on the national agenda.
The King's Fund responds to the Secretary of State for Health and Social Care's vision for prevention06/11/2018 11:35:00
David Buck, Senior Fellow at The King’s Fund, commented on the Secretary of State for Health and Social Care’s vision for prevention
Demos - Reading can help halt loneliness epidemic, says new report06/11/2018 10:35:00
Reading can help halt loneliness epidemic, says new report