THE GLOBAL economy will grow by 4.5 per cent this year, but in the euro zone “things will get worse before they get better”, according to investment bank Merrill Lynch.

While fears of a double-dip recession have been “put aside for now”, Bill O’Neill, its chief investment officer for Europe, Middle East and Africa, said in Dublin yesterday that two-thirds of the growth would come from just one-third of the world.

Although the German economy raced ahead of expectations last year, Mr O’Neill said many other euro zone states, particularly Spain, France and Italy, were overestimating their growth prospects.

He did not include Ireland in this category despite widespread scepticism about the official growth targets – an average of 2.75 per cent over the next five years – contained in Budget 2011.

The euro would also weaken on global currency markets for the first half of the year, Merrill Lynch forecast. The recovery in the US was also “likely to disappoint”, Mr O’Neill predicted.

The investment bank, which was taken over by Bank of America during the global financial crisis, expects the US will avoid a double-dip recession. But job-creation will remain very weak compared to previous recoveries, and the Federal Reserve may mull a third round of quantitative easing to provide more stimulus.

By contrast, consumers in emerging markets such as Thailand, Turkey and Indonesia will become more important contributors to global growth.

The Chinese economy will again act as a powerhouse, growing by more than 9 per cent, while the Indian economy will expand by more than 8 per cent, according to Merrill Lynch’s forecasts.