The global economy is pulling out of the fiscal black hole caused by the credit crisis, but is unlikely to return a stellar performance in the near future.
That’s the opinion of the opinion of think-tank the National Institute of Economic and Social Research (NIESR), which tracks the world economy.
The key figures are global growth is likely to hit 3.1% this year and 3.6% in 2014.
Slowing growth in emerging markets, like China, are dragging on the global economy, says the NIESR.
The report also warns that any thought of increasing interest rates to aid recovery will stall growth even more.
Growth prospects
“Growth prospects for this year have dropped back since May,” said the NIESR report.
“We view this as a general slowdown in key emerging market economies, especially China, but they cannot take all the blame because the recovery has lapsed in other important economies like the USA and Europe.”
Looking at inflation, the study sees ‘modest’ increases in most economies mainly due to employers holding back on wage increases and the continued low price of commodities.
The NIESR sees a number of risks for future recovery:
- More aggressive monetary policies could upset markets
- Lack of demand in some emerging markets could be more of a problem than first realised and could hold back global growth
- Political problems relating to the US budget negotiations could stall recovery in America
- Banking reform is not unified, leaving unacceptable risks in some countries
- The Eurozone faces some tough decisions about dealing with deficits and moving towards closer banking union
The NIESR says speculation based on comments on interest rates and quantitative easing by US Federal Reserve chairman Ben Bernanke.
Predictions for 2014
“Other factors that have had a bearing are uncertainty about the feasibility of Japan’s monetary policies and government action to try to control credit in China,” said the research report.
The NIESR bases predictions for growth in 2014 on the success of the fiscal stimulus program in Japan and continued good news about groping GDP from the US.
The think-tank is calling for Japan to announce clear and credible plans for fiscal consolidation to underpin the current recovery.
Praise was also given to the European Union for allowing some eurozone governments to take the brakes of austerity budgets to reduce budget deficits, giving the countries more time to meet tough targets.
