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First US interest rate rise seen in Dec: EIU

US Federal Reserve Building in Washington, DC.

THE first US interest rate rise is seen in December, after which rates will rise steadily during 2016-18, according to The Economist Intelligence Unit (EIU) in its latest global outlook summary.

The research group said the decision of the US Federal Reserve to keep interest rates essentially at the zero lower bound in September, represented a vote of no-confidence in the global economy.

"We believe that the Fed will act at this point, following data that show domestic demand continuing to rise, the unemployment rate falling and, most importantly, the generation of some inflationary pressure,'' EIU said.

"We then expect many other central banks to fall into step. The oil-enabled monetary loosening seen in the past year will end and new tightening cycles will gradually begin,'' it added.

China will remain the biggest risk to the global economy as it negotiates a tricky period, where slumping stock market, sliding exports and capital outflows have exposed structural weaknesses in the economy. This will result in China's growth slowing to 6.9 per cent in 2015 and as far as 4.9 per cent by the end of the decade.

The EIU expects China to overtake the US in 2026 in nominal gross domestic product (GDP) terms to become the world's largest economy, and will maintain this position until at least 2050.

For the global economy as a whole, EIU expects growth to accelerate in 2016, to 2.7 per cent at market exchange rates, and 3.5 per cent at purchasing power parity exchange rates.

"These are mild improvements that reflect less dire years for Brazil and Russia and quickening growth in Europe, Japan and India. But the general sense of underperformance that has clung to the global economy since the financial crisis will be very difficult to shift in 2016 and beyond,'' EIU said.