Global Economy Still Bust Five Years After Credit Crunch

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After five years of trying to shake off the effects of the worst financial crisis for decades, the world’s economy is still flat lining, says a leading research institute.

The National Institute of Economic and Social Research (NIESR), an independent British think-tank, says the Eurozone is still mired in recession and the single currency economy will grow by only 1% next year.

The research also points to the US economy, which many analysts hope will lead the world out of recession, as only able to grow by just over 2% this year and next.

One of the biggest issues is that unemployment is still high in many countries – and at depression era rates in some parts of Europe.

The institute’s projections for global growth in the coming year are unchanged for most countries, except Japan, which has recently announced a massive fiscal policy to boost growth.

Weak demand

Total world output growth is projected to be 3.3% this year, rising to 3.7% next year, which illustrates that the global recovery is not only hesitant and uneven but also below par.

In their report, the NIESR states: “Our outlook reflects weak demand in advanced economies resulting from several factors including the leveraging of fiscal consolidation in private sectors and impaired credit.  There are also significant policy uncertainties.”

Improving demand from the private sector in the US has led to an improvement in the financial health of banks and households which in turn is helping to fuel economic growth.

The recent announcement by the Bank of Japan to introduce stimulus measures for their economy has led to the NIESR predicting a 2% growth in that country’s economy this year.

However, it is the developing and emerging market economies of Asia where the prospects for growth appear to be better – for certainly more so than last year where many of those countries experienced a moderate slowdown.

Inflation problems

The institute is particularly scathing about the prospects for the Eurozone and questions whether the establishment of fiscal and banking union will ever materialise.

Indeed, their research raises major questions about the true size of economic outputs for many advanced economies,

Their report also highlights how sensitive inflation is to economic output and employment levels and they question the validity of some countries claiming a growth in productivity.

The report adds: “This is the fifth year that the global economy is working its way out the largest financial crisis in decades and medium term prospects are unusually uncertain.

“There are several factors constraining growth and these may remain in place for several more years.”

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