Economic Outlook

Less Even Growth in the World Economy with Significant Downside Risks

Kiel Institute Economic Outlook World, Nr. 45 (2018 | Q3)

The global economy is losing steam. After a weak start in the beginning of this year, world production accelerated again in the second quarter of 2018. However, the recent expansion probably overstates its underlying momentum. At the same time, the expansion is becoming less even as compared to last year. In addition, global economic prospects remain subject to significant downside risks in light of increasing trade tensions, investors withdrawing funds from emerging markets, and uncertainty concerning the effect of renewed Iran sanctions on oil prices. Our forecast for global growth in 2018 nevertheless remains unchanged at 3.8 percent; for 2019 we slightly revise downwards—by 0.1 percentage points—to 3.5 percent. In 2020 world output is expected to rise by 3.4 percent. Despite the gradual global economic slowdown, capacity utilization in advanced economies will remain high. As a consequence, inflationary pressures will gradually increase beyond the current temporary pick-up of inflation stemming from higher oil prices.