NIESR’s Global Economic Forecast

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Pharma IQ News
Pharma IQ News
05/03/2013

  • The world economy will grow by 3.3 this year, and by 3.7 per cent in 2014: still below trend.
  • In the developed world, divergence continues; the US will grow just over 2 per cent in each year, while the Euro Area remains in recession and will grow only about 1 per cent next year.
  • Unemployment remains very high in most countries, and at depression-era rates in some peripheral Euro Area countries.

 Global growth projections for 2013–14 are essentially unchanged, overall, from three months ago, with some upward revisions, most notably for Japan, offset by some downward revisions, including for the group of non-OECD countries. With world output growth again projected at 3.3 per cent in 2013 and 3.7 per cent in 2014, the forecast again points to a global recovery that is hesitant, below par, and uneven.

This outlook reflects, especially in the advanced economies, weak demand resulting from several factors, especially continuing fiscal consolidation and deleveraging by private sectors, impaired credit intermediation in many cases, and significant policy uncertainties. Of most concern is the continuing slump in the Euro Area, which is expected to remain in recession in 2013 and seems unlikely, on current policies, to experience better than weak growth next year. In the United States, private sector demand has continued to be strengthened by a substantial improvement in the financial positions of banks and households, but this is being partly offset by accelerated fiscal adjustment. Our growth projections for Japan have been raised to 2 per cent per annum in 2013–14 to take account of the announcement of significant fiscal and monetary stimulus measures. But the main drivers of global growth remain the developing and emerging market economies, especially in Asia; prospects seem good for a broad strengthening of growth in these economies this year and next, following the moderate slowdown experienced in 2012.

With the global economy now in its fifth year of working its way out of the largest financial crisis for several decades, prospects for the medium term are unusually uncertain. In many cases, progress with fiscal consolidation, private sector deleveraging, and the repair of financial sectors has far to go; all these factors form constraints on growth that may remain for several more years. In some advanced economies, major questions have arisen about the true size of output gaps, possible structural shifts in the sensitivity of inflation to output and employment gaps, and trend rates of productivity growth. In the Euro Area, there are major uncertainties about feasible progress towards completion of the economic and monetary union – particularly through the establishment of a banking union and fiscal union – and about progress with adjustment toward sustainable external and internal balances, including reasonably high levels of employment in the weakest economies. In addition, there are uncertainties surrounding the inevitable slowing of trend growth in the economies that in recent years have been the most dynamic, especially China.


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