Global economic growth has started to slow down, according to Douglas McWilliams, the chief executive of the Centre for Economic and Business Research (CEBR).
Speaking in the first session of the Fund Strategy Investment Summit being held in St Petersburg, McWilliams said he expects world GDP growth in 2011 will be now be less than that achieved in 2010, although he does not predict a double-dip recession.
Indeed in its September forecast, CEBR cut its June prediction of world GDP growth in 2010 from 3.75% to 3.5%, while in 2011 its forecast was reduced from over 4% to just over 3.5%.
McWilliams said the inventory turnaround, which helped propel growth, is now running out of steam while some of the counter recessionary policies are also being scaled back.
In this environment, McWilliams said interest rates will stay low in both America and Britain and he also expects a second round of quantitative easing to boost growth. (article continues below)
“In the UK, a combination of the budget deficit and more quantitative easing—which could be announced in the November MPC [monetary policy committee] meeting—will push yields down further,” said McWilliams.
“We still think the OBR [Office for Budget Responsibility] forecasts for UK growth are too strong. It will be difficult to absorb the spending cuts and an upcoming VAT rise, meaning we are close to a point where monetary policy is going to struggle to keep the economy going.”
As a result, McWilliams said that he cannot see interest rates rising for at least three years.
Meanwhile, McWilliams said that with Europe set to be one of the slowest growing economic regions, he cannot see the euro surviving in its present form.
“I assume the euro must blow up,” he said. “Spain has a massive debt problem combined with a housing market problem meaning its economy is potentially in huge trouble. However, it will be much more difficult to bail out Spain compared with Greece and Ireland. I don’t think the euro will survive, and if it does, the price to be paid will be weakness.”