National Institute of Economic and Social Research announced its latest forecast on the world and the UK economy and launched 219th review at the organisation’s regular press conference in Westminster yesterday.

“Prospects for the World Economy” was presented by Dawn Holland, NIESR’s senior research fellow, at the beginning of the conference. According to forecast, that is broadly in line with “muddling through” scenario from October 2011q3, presented by Holland:

NIESR research fellows Angus Armstrong,Simon Kirby, Dawn Holland and its director Jonathan Portes at the institution’s press conference in Westmisnter.

NIESR estimates the global growth to be 3.5 per cent in 2012 which is to increase to 4 per cent in 2013 .However it also expects a mild recession in the first half of 2012 in the Euro Area and the UK. Whether European leaders move towards stronger economic and political integration and in the direction of fiscal union or towards a weaker union, entailing development of an exit strategy from the Euro which will be costly; they have to be decisive to solve the Euro Area Crisis. The Institute assumes that the commitment to monetary union and the benefit this has brought to the area since 1999 will override the commitment to fiscal independence-as proved by 9 December move towards a new fiscal compact. It expects European leaders to reach a decisive agreement by the second half of 2012, which will ensure European sovereigns can meet their borrowing needs at reasonable rates of interest.

While EU searches the best solution for its debts crisis, the US economy surprisingly grows. In the last quarter of 2011, GDP rate increased to 2.8 per cent. The unemployment rate fell from 9 to 8.5 per cent in December. While share prices increased by more than 10 per cent; inflation remained relatively moderate at 2.6 per cent. However GDP growth expected to be 2 per cent in 2012.

Canadian economy, that is sensitive to developments in the US, expanded by 2.4 in 2011 and is expected to grow by 1.9 per cent in 2012.The inflation rate of the country rose from very low level in 2009 to 2 per cent in 2011 and is expected to fall this year.

Brazil’s economy, that has now overtaken the UK as the world’s seventh biggest economy according to IMF World Economic Outlook database, expanded by 3 per cent in 2011 and is expected to grow by 3.75 per cent in 2012 and 4 per cent in 2013. Even though the country succeeded to lower its income inequality from 60.6 to 53.9 from 1990 to 2009 according to World Development Indicators of the World Bank, its inflation rate exceeded the target of 6.5 per cent by 0.1 percent in 2011.

Japan economy has started  to recover from the March 2011 Great East Japan Earthquake and tsunami and is expected to grow by 1.75 per cent in 2012 and 1.5 per cent in 2013.

GDP growth of China that dropped from 10.4 per cent to 9.03 per cent in the final quarter of 2011 is expected to grow by 8.5 per cent in 2012 and 8 per cent in 2013.Inflation in the country fell in the second half of 2011 to 4.1 per cent from 6.5 per cent. Since 2007 credit crunch, the world has been witnessing a gradual internationalisation of Chinese Renminbi meaning residents and non-residents use the currency to invest, borrow and invoice outside the home country.

Indian economy grew by 7.3 per cent in 2011 and will grow by 7.25 per cent in 2012 while inflation is estimated to increase to 8.3 per cent in 2012.

Simon Kirby, NIESR’s senior researcher, presented “Prospects for the UK Economy” in the second part of the conference. Kirby explained that:

The UK economy,that  is currently suffering  from deficient demand, is expected to contract by 0.1 per cent  while facing a technical recession this year but grow by 2.3 per cent in 2013.While consumer price inflation falls back to 2.2 per cent this year and 1.4 per cent in 2013; unemployment is to increase to 9 per cent in 2012. The country’s budged will return to its balance in 2016-17.

Senior research fellow Angus Armstrong presented his newly published commentary on Scotland’s currency and fiscal policy ,considering the emerging economic framework for an independent Scotland in the third part of the conference.

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