JEDDAH: Global economic growth will slow this year to the lowest rate since the financial crisis, according to the National Institute of Economic and Social Research (NIESR).

“We have downgraded our growth forecasts for North America and a number of emerging market economies in Asia and Latin America,” said a report from the institute.

While the Greek crisis has been the main preoccupation of eurozone policymakers, our growth forecast for the Euro Area has been lowered only slightly.

The threat of deflation in the advanced economies, which had been a particular concern in the Euro Area, has receded.

Although still below central banks’ objectives, headline inflation in most major advanced economies has risen to positive levels, and it is expected to rise further in the coming months, assuming no further significant decline in oil prices.

The central banks of the Euro Area and Japan have continued their programs of large-scale asset purchases, with their benchmark short-term interest rates set at or below zero.

In the US, Federal Reserve officials have indicated that the first increase in the target federal funds rate is likely before the end of 2015.

“Our forecast assumes one increase in 2015, taking place in September,” said the NIESR report.

In financial markets, the most significant development since April has been a general rise in government bond yields across the advanced economies, most markedly in the Euro Area. Possible explanations include upward revisions in expectations for growth and inflation, and the correction of earlier overshoots on the downside.

In addition to the risks discussed in previous Reviews, this Review highlights two key risks, both to the short and medium term.

First, GREECE. “Our forecast assumes that the new program will return the Greek economy to a path of moderate recovery and that the Euro Area will remain intact,” NIESR report added. However, this benign scenario relies on our assumption that large-sale debt relief will be forthcoming. More fundamentally, the Greek crisis has highlighted shortcomings of the Euro Area’s institutional arrangements, and revived doubts about whether Europe’s monetary union can succeed without deeper economic, fiscal, and political integration than is currently envisaged.

Second, CHINA. “Our forecast assumes a continuing, gradual slowing of growth as the economy makes a transition from a high-growth path to more moderate growth driven by consumption,” said the NIESR statement. Some recent developments have increased risks to this strategy. Consumer price inflation has slowed to 1.4 percent, producer prices have been falling for more than three years; and the GDP deflator also fell in the first quarter.

The authorities’ recent interventions in the equity market may not only discourage participation in the market, but also reduce confidence, more broadly, in the government’s market-oriented reform strategy.