Global economic growth will slow this year to the lowest rate since the financial crisis, according to the National Institute of Economic and Social Research (NIESR).
The think tank cut its 2015 forecast to 3.0% from the 3.2% it predicted in May. It has cut growth forecasts for the US and many emerging market economies, although its forecast for the eurozone has only been cut slightly. Its growth forecast for the UK economy was unchanged at 2.5%.
The full-year growth prediction for the UK remained unchanged despite the NIESR cutting its growth estimate for the three months to the end of September from 0.8% to 0.4%.
NIESR identifies the Greek economy as a key risk to global growth. Its forecast is based on the assumption that there will be “large-scale debt relief” for Greece, which is currently far from certain. It says that the latest Greek crisis has revived doubts about whether the eurozone currency union can succeed without greater integration.
The NIESR also says that the slowdown in China may threaten its forecast, with official figures predicting growth of 7%, while some analysis suggests growth of 3% is more likely.
While NIESR was generally upbeat about the UK economy, it believed that weak productivity would remain a challenge.
Simon Kirby, an economist at the institute, said: “It’s the major domestic risk.”
NIESR expects inflation to remain about zero until the end of the year due to low oil prices and the strong pound, but that it will return to the Bank of England’s target of about 2% a year by 2017.
Mr Kirby said the rise in the value of sterling and a fall in oil prices would be temporary. The think-tank expects the Bank of England to finally raise interest rates in February next year. Economists polled by Reuters last month mostly expect the Bank to raise rates in the first quarter of 2016. The Bank’s Monetary Policy Committee (MPC) is expected to leave rates unchanged at its meeting this week. However, there is expected to be a split among MPC policymakers for the first time this year on the need to raise borrowing costs immediately.