OECD urges policy rethink to offset sluggish growth

16 Sep 15

A shift in policy is needed to offset the slowdown in global growth, according to the Organisation for Economic Cooperation and Development. 

The economic think-tank is concerned that stagnation in global trade and deteriorating conditions in financial markets will curb prospects for global growth.

Global growth this year is set to be 3%, well below average, while 2016 could see some strengthening to 3.6%, the think-tank said. The OECD cut its growth forecast from 3.1% for this year and 3.8% for next year in June, noting the marked slowdown in countries like China and Brazil.

Its latest Interim economic outlook report, however, characterised the short-term outlook for the global economic environment as full of “puzzles and uncertainties”.

“Global growth prospects have weakened slightly and the outlook is clouded by important uncertainties,” said OECD chief economist Catherine L. Mann.

“Emerging economies have vulnerabilities that could be exposed by rising US interest rates and/or a sharper-than-expected slowdown in China, giving rise to financial and economic turbulence that could also exert a significant drag on advanced economies.

“Continued policy stimulus is warranted to support global demand, but the mix of policies will differ by country, and choices need to be consistent with financial stability and reviving long-run growth.”

The report highlighted strong growth particularly in the US. The OECD raised its growth outlook for the country this year from 2% to 2.4%, but trimmed its 2016 forecast to 2.6% to 2.8%.

It said growing employment and household consumption were driving solid growth in the US, but investment continued to disappoint.

“The US recovery remains solid, but there are puzzles around developments in other major economies,” it noted.

“The US Federal Reserve will soon need to begin to raise its policy rate at a gradual pace, given the solid growth of the US economy and concerns over asset prices.”

Looking at the euro area, the OECD said, growth was improving but not as fast as would be expected given the falls that have been seen in oil prices, long-term interest rates and the value of the euro. Growth in the eurozone was projected at a 1.6% this year and 1.9% next year.

For China, the OECD lowered its growth outlook to 6.7% for this year and 6.5% in 2016.

It said: “The Chinese authorities face the policy challenge to sustain growth while advancing structural change and managing risks. Additional stimulus may be needed.”

The outlook is weaker for many commodity-exporting nations, with Brazil experiencing a deep recession. The economy is expected to contract this year by 2.8% and next year by 0.7%. 

  • Judith Ugwumadu
    Judith Ugwumadu

    Judith writes about public finance, public services and economics across Public Finance International and Public Finance. She previously undertook reporting stints at Financial Adviser, Global Security Finance and The Sunday Express.

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