Global Economy Growing At Fastest Rate Since 2011 But NIESR Warns Of Slowdown

NIESR found global real GDP growth picked up 3.7% in 2017, 0.2% higher than forecast in November, while it is expected to expand  3.9% in 2018 and 3.8% in 2019.

However, the firm said there could be some slowdown in the speed of the expansion unless productivity surprised on the upside.

NIESR noted key downside risks to growth were the sustainability of asset prices and high debt levels, especially at a time of rising rates in the US.

Despite holding rates at their current levels last week, it is expected the Federal Reserve will hike rates three times this year.

Warning bond and equity market sell-off has further to run as inflation fears build

Furthermore, uncertainty has been added to markets with the appointment of a new Fed chairman Jerome Powell, who was sworn in on Monday.

The report said: "A new Fed chair, and the prospect of new committee members, adds an element of uncertainty in an environment where faster growth may lead to a pick-up in inflation.

"Expansionary fiscal policy and an increasingly tight labour market are likely to feature in the Fed's discussions through the year.

"At the same time, however, seemingly stretched equity valuations could raise financial stability concerns."

NIESR also highlighted concerns around protectionist measures around trade and geopolitical tensions, most notably between the US and North Korea.

In Europe, real GDP growth is expected to grow at 2.2% in 2018 and 1.8% in 2019, according to NIESR, with inflation expected near the European Central Bank's (ECB) target of 2%.

It said: "In some economies the cumulative effect of monetary easing is still at work but there are concerns that in some countries a tightening of capacity pressures may lead to increased inflationary impulses.

"In the medium term there are risks that the various stresses within the monetary union… may become more challenging once the ECB starts to raise interest rates."