The Organisation for Economic Cooperation and Development (OECD) cited uncertainty following the UK’s Brexit vote and wider global growth woes for its assessment.
Advertisement
In its latest interim economic outlook, the OECD says weak trade growth and financial distortions are exacerbating slow global economic growth. “However, GDP is projected to slow to 1% in 2017, well below the pace in recent years and forecasts prior to the referendum”.
“A more balanced policy mix would put the global economy on a higher growth path and reduce financial risk”, the OECD said, arguing that fiscal and structural reforms at the government level could take some of the burden off of monetary policy. Like many central bankers, the OECD also called for national governments to do more in the way of fiscal policy (taxation and spending) to boost growth.
The think-tank upped its United Kingdom growth projections for 2016 by 0.1 per cent to 1.8 per cent, highlighting a strong pre-referendum economic performance and prompt action by the Bank of England.
Despite solid consumption and job growth, US growth slowed due to weak investment, partly reflecting developments in the energy sector, and a prolonged inventory correction, the OECD said.
Until recently a staunch supporter of George Osborne’s austerity plan, the OECD said it was appropriate for the new chancellor, Philip Hammond, to increase public spending in his first major policy statement later this year.
The UK’s 0.6 per cent growth was more than double the 0.3 per cent measured in the US.
The OECD said many global supply chains that add economic value at each stage and are often rooted in China and other east Asian countries were unravelling as China sought to wean its economy off of exports for growth and some firms brought back production to their home countries.
Global growth has been revised down for 2016 and 2017, according to the OECD.
High nonperforming loans in some euro area countries continue to hold back growth prospects and the significant slack in the labor market remains amid few signs of inflation and wage pressures, the report said.
That was easily the largest downgrade any major advanced economy.
Trade growth – which had been driven by China for many years and had helped limit the impact of the crisis – was predicted by the OECD to lag GDP in the global economy. Japan’s outlook for this year was cut to 0.6 percent, while the projection for next year was raised to 0.7 percent. India’s growth forecasts were also retained at 7.4 percent for this year and 7.5 percent for 2017. Still, though, the revisions indicate officials at the economic overseer don’t expect the U.K.to plunge into a recession following the country’s Brexit vote – which was a possibility discussed at length in the buildup to and in the immediate aftermath of the decision. GDP was forecast to shrink 3.3 percent this year and 0.3 percent next year.
Advertisement
“While weak demand is surely playing a role in the trade slowdown, a lack of political support for trade policies whose benefits could be widely shared is of deep concern”, Mann said.
