The UK and Europe are likely to stay in recession for some months and other developed nations face challenging economic problems that will slow down growth, according to the latest global economic forecast from a leading think tank.
China and India are still forging ahead to lead world output, but their rate of growth is likely to slow, says the National Institute of Economic and Social Research (NIESR).
Economists predict global growth of 3.7% in 2012 accelerating to 4% in 2013 in the NIESR’s latest National Institute Economic Review.
Growth in the US is likely to stall at 2%, but the future for the UK and Eurozone economies looks like languishing in the red for at least the first half of 2012.
The European Central Bank averted a second global banking crisis by pumping €530 billion in to eurozone banks, easing market tensions, says the NIESR.
Although assuming a successful resolution of the Eurozone sovereign debt crisis, the report writers warn that Europe still faces financial problems that could escalate and push the EU back in to turmoil.
“Fiscal austerity is depressing growth in those countries most affected by the crisis; this in turn reduces tax revenues, making the restoration of fiscal sustainability and hence market confidence even more difficult,” said the report. “This risks a negative feedback loop; downside risks, both economic and political, therefore remain high.”
Outside Europe, the NIESR observes economic pressures have slightly improved, but rising oil prices wiped out any short gains in markets and growth.
“We forecast relatively slow growth of about 2% in other developed economies. In the US, this assumes that fiscal policy is not tightened abruptly; were this to be the case, growth would be significantly slower. Fast, although slightly slowing, growth in China and India, continues to drive global growth, for the year as a whole,” said the report.