The global economy

This is a chapter of the IFS Green Budget 2017. The material was written by researchers at Oxford Economics.

Global economy will accelerate in 2017.

After growing an estimated 2.2% in 2016 – the slowest pace since 2009 – the world economy is expected to accelerate this year and expand by 2.6%, boosted by stronger growth in the US and some emerging markets. However, this still represents a modest pace compared with historic standards and would be below the long-term average of 2.8%.

A year of higher inflation and higher bond yields.

This year will mark the return of inflation for many advanced economies, as the effect of lower oil prices in 2015–16 fades and expansionary policies in the US create additional inflationary pressures. A combination of higher inflation expectations and a gradual monetary policy normalisation in the US will see bond yields rising further in most developed economies.

Risks are unusually large this year, but go both ways.

The election of Donald Trump as US President and the unpredictability of some of his policies add an additional layer of uncertainty to forecasts this year. A case can be made for both stronger- and weaker-than-expected growth. Equally, there are fears that a heavy electoral calendar in Europe could yield destabilising results, but the common currency area proved remarkably resilient to shocks during a difficult 2016 and we think this year will be no different.