Weak manufacturing activity, due largely to the high price of oil, will limit the growth of the the global economy to 3% this year, according to a new report from the Conference Board of Canada.

“Surging oil prices have cut into global consumer spending, and manufacturers have been forced to cut production and employment due to rising inventories,” says Kip Beckman, principal research associate. “Interest rate increases, intended to limit the inflationary effects of energy prices and a global housing boom in the United States and parts of Europe, are also weakening overall growth.”

The Conference Board says the recent transportation bombings in London are unlikely to significantly affect either the global or United Kingdom outlooks.

“Economies tend to recover relatively quickly from these tragedies. With the possible exception of the UK’s tourism sector, which could see visitor arrivals fall off slightly in 2005, the impact should be temporary,” Beckman says.

The world economy’s real gross domestic product increased by 4% in 2004, but the global growth rate is forecast to decline to e% in 2005 and 2006, respectively.

China and the United States are keeping the world economy afloat. Despite high energy prices, U.S. consumer spending is growing solidly, investment in equipment is accelerating, and export demand is increasing. China’s economy continues to surge-growth will approach 9% in 2005, slightly less than the 9.5% gain recorded in 2004.

The global manufacturing downturn is having its greatest impact on Europe. Real GDP growth is forecast to increase by just 1.8% this year, and the economies of Germany, France and Italy are especially troubled. Even though the euro has declined against the U.S. dollar recently, it remains high compared with its levels of a few years ago, which has hurt the competitiveness of many industries in Europe.