Global GDP growth forecast revised up to 3.6%, NIESR says

Forecasts for world GDP growth in 2017 have been revised upward by the National Institute of Economic and Social Research as several major economies exceed expectations for the year.

Global growth has been revised to 3.6% by the NIESR, while it has maintained its 2018 and long-term projections of 3.6% and 3.4% respectively.

In the report released by the research institute, strong performances from the Euro Area and Japan in particular drove the 2017 forecast higher.

Both areas have seen super-low interest rates in recent months and years, with the NIESR pointing towards this as a factor in their economic growth.

“Recent data for several major economies point to a more significant pick-up in global growth this year than we projected in May. Among the advanced economies, the upward revisions have been most marked for the Euro Area and Japan,” the report said.

Strong performances from the Euro Area and Japan in particular drove the 2017 forecast higher

“The improvement in growth performance seems due partly to the highly accommodative monetary policies of recent years but also to a turnaround in the stance of fiscal policies since 2015.”

A lessening of political instability in Europe was also referenced as a major reason behind the revision of the forecast, but the NIESR added it was still at the risk of further weakness owing to political events.

“In the euro area, political uncertainty has been reduced by the French elections, but risks of financial instability remain, especially with an incomplete banking union. More broadly, economic recovery remains fragile and could be derailed by policy mistakes.”

According to the report, lower-than-expected inflation across major economies presents a unique dilemma for central banks as they seek to maintain sustainable growth.

“Past relationships both between unemployment and inflation, and between interest rates and demand, seem unreliable,” it said.

“Economic recoveries are fragile, the costs of any renewed weakness are potentially high, and consistently below-target inflation in recent years jeopardises the credibility of the symmetry of inflation targets.”