Global economic growth is to slow down to its lowest rate since the financial crisis, according to a leading economic think tank. The National Institute of Economic and Social Research (NIESR) has cut its 2015 forecast to three per cent from the 3.2 per cent initially predicted.
It said growth may be boosted by delayed effects of lower oil prices, as well as by accommodative monetary policy and slower fiscal consolidation, but considerable risks remain.
While it has cut growth forecasts for the US, the eurozone and many emerging market economies, the UK's forecast remained unchanged at 2.5 per cent. The NIESR was upbeat about the UK economy but said that weak productivity would remain a "major domestic risk".
It expects inflation to remain at about zero until the end of the year due to low oil prices and the strong pound. However, NIESR economist Simon Kirby said the rise in the value of sterling and a fall in oil prices would be temporary, and that inflation should return to the Bank of England's target of around two per cent a year by 2017.
Greece remains a risk to global growth
NIESR identifies the Greek economy as a key risk to global growth, arguing that the latest Greek crisis has revived doubts about whether the eurozone currency union can succeed without greater integration.
It said the country's economy will suffer damage from the latest round of austerity measures and will remain stuck in permanent depression unless it receives substantial debt relief.
"More could be done. Given the uncertainties involved, the authorities do not appear to have heeded one of the lessons of earlier financial crises: it can turn out to be a lot cheaper to buy too much insurance than too little," Mr Kirby said.
Meanwhile, the NIESR believes that the Chinese economy will go through a continuing, gradual slowing of growth as it makes a transition from a high-growth path to more moderate growth driven by consumption.
The think tank said it still expect the US Federal Reserve to start raising interest rates in September, with the Bank of England following in February 2016.
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