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Higher oil prices biggest factor in slowing growth

Sharp rise in oil prices will have the greatest effect in the US, says NIESR report

Global growth could slip from 5.2 per cent last year to 4.4 per cent in the coming two years, according to a report by the National Institute of Economics and Social Research.

The NIESR global economic forecast, published last week, says the recovery of the world’s economy is likely to be slow this year, with higher oil prices singled out as the biggest factor causing the easing.

The report claims the “sharp rise” in oil prices will have the greatest effect in the US and will cause inflation to rise from 1.7 per cent in 2010 to 3.2 per cent this year. It adds that US GDP growth may slow from 2.9 per cent to 2.6 per cent over the same period.

However, the price of oil fell for the fifth day in a row last Friday and Brent Crude stood at US$108.6 a barrel as of May 6. This follows a record fall of US$12 a barrel last Thursday.

NIESR says in the eurozone, the effect of oil price inflation is likely to be less pronounced although the bloc’s members could see economic growth hampered by the “fiscal ret-renchment” already under way.

Eurozone GDP is tipped to grow by 1.7 per cent this year and 1.9 per cent in 2012, with Germany set to drive expansion through GDP growth of 2.6 per cent in 2011.

The NIESR adds that Japan’s GDP growth will come in at a “modest” 1.1 per cent in 2011 as the aftermath of the March 11 earthquake and tsunami is predicted to only have a marginal effect on expansion.

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