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
IPPR - May and Johnson’s Brexit Deals compared: A harder deal, less alignment and more barriers to trade18/10/2019 15:15:00
IPPR analysis finds Johnson’s deal points to harder Brexit than May’s
IFG - Government cannot afford to support business in a no-deal Brexit17/10/2019 13:35:00
If the UK leaves the EU without a deal, the government will not be able to support all affected industries, argues a new report by the Institute for Government. Against a backdrop of steeply deteriorating public finances, the government will be forced into impossible choices about which businesses and industries to save. Without clear principles, the fight over subsidies will be swamped by politics.
NIESR monthly CPI Tracker: Inflation unchanged after fuel price falls17/10/2019 13:10:00
According to figures released yesterday by the ONS, consumer price index inflation remained unchanged at 1.7 per cent in the year to September 2019.
Civitas - Social democracy faces extinction without a new high-growth economic strategy – John Mills17/10/2019 12:35:00
The centre-left faces ‘extinction’ unless it can break free of neoliberal economic dogma and find a way to credibly deliver significantly higher rates of growth in the years ahead, a new book by the businessman and Labour donor John Mills warns.
IFG - No-deal Brexit would be high-stakes gamble with the Union17/10/2019 11:35:00
A no-deal Brexit would be highly controversial in all three devolved nations and increase risks to the Union itself, argues a new report by the Institute for Government.
The King's Fund responds to the Care Quality Commission's State of care report17/10/2019 10:35:00
Sally Warren, Director of Policy at The King’s Fund commented on the new State of care report from the Care Quality Commission (CQC)
Civitas - Muslims targeted for supporting counter-extremism initiatives – new report17/10/2019 09:35:00
Liberal Muslims working on counter-terrorism and counter-extremism are routinely subjected to abuse and intimidation, a new Civitas study shows.
NIESR Monthly Wage Tracker: Labour market weathering an increasingly difficult economic environment16/10/2019 11:25:00
Labour market weathering an increasingly difficult economic environment.
JRF - Politicians need to step up and deliver for people on low incomes15/10/2019 14:35:00
The Joseph Rowntree Foundation has called for real action in the November budget, as the Government presented the first Queen’s Speech in over two years, which JRF says failed to address the concerns of low-income voters