Global growth is expected accelerate over the coming months, but economies are still gripped by uncertainty following the financial crisis, says a respected think tank.
The world economy is predicted to pick up from 3.1% last year to 3.3% by the end of 2017, increasing to 3.6% in 2018, according to the National Institute of Economic and Social Research (NIESR).
The think tank cites the impact of inflation rising close to central bank targets in most developed countries except Japan is encouraging growth.
Other reasons include a move towards fuller employment, but the NIESR warns subdued wages may indicate a skills gap.
Looking at emerging markets, Brazil is expected to break loose from recession this year; India – which has the fastest growing major economy – is expected to power forward and a drop in growth in China is forecast to reverse.
Doubts over USA and EU
Doubts still remain about GDP in the USA and Europe.
In the US, doubts still remain about the effectiveness of President Donald Trump’s policies and if he can see them through an unsupportive Congress.
In Europe, the four biggest economies are all going through changes enforced by elections.
The NIESR considers the polls are the biggest danger to European economies as the results are by no means certain.
The elections could see jittery stock markets as a result of disappointing results.
Jittery markets and policy fears
Another fear is increasing interest rates in the USA over fears of a widening budget deficit and stresses from inflation increasing to fuel concerns about the US dollar exchange rate and how moves could affect the global economy.
Other worries include how protectionist trade policies in the US could influence growth and political obstacles to reforms in the EU.
NIESR’s Graham Hacche said “The gradual strengthening of the global expansion that we projected in the February 2017 Review seems to be materialising. However, the new forecast has been constructed at a time of unusual uncertainty.
“There are significant risks that the gathering momentum of global growth could be derailed by policy mis-steps by major economies including protectionist trade policies and unrealistic budgets or a weakening of private sector confidence.”