“Growth is flat in the advanced economies and has slowed in numerous emerging economies that have been the global locomotive since the crisis”, OECD Secretary-General Angel Gurría said while launching the report in Paris.
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It predicts Britain’s GDP will grow by 1.75% in 2016, less than the 3% world average but slightly more than the 1.6% across Europe. Several countries have fiscal policy scope to boost public investments as low long-term interest rates have increased the maneuvering room of public finances and nearly all countries have the opportunity to reallocate spending toward projects that stoke growth.
“Monetary policy has been the main tool, used alone for too long”, OECD chief economist Catherine Mann said in the semi- annual report released Wednesday.
It also advised the Government to prioritise structural reforms that would get more people back to work by improving the efficiency of public employment services, so that growth can become more sustainable.
The Outlook argues that reliance on monetary policy alone can not deliver satisfactory growth and inflation.
“Monetary policy can not revive near and long-term growth by itself, and distortions are increasing”, the OECD said.
The report noted that low dairy prices and the slowing natural disaster rebuild would likely weigh on growth next year, and warned of the impact of a sharp downturn. Exports have been weak but net foreign direct investment has rebounded and more than fully financed the current account deficit in 2015, OECD said in its detailed report on India. “Governments today can lock in very low interest rates for very long maturities to effectively open up fiscal space”. After the ECB’s April policy meeting, he said that “in order to reap the full benefits from our monetary policy measures, other policy areas must contribute much more decisively”.
Analysis by the OECD shows that the impact in the first year of a 0.5% of GDP increase in public investment by all rich OECD economies would be to boost world growth by 0.4 points.
The OECD cut its forecast for United Kingdom growth this year to 1.7 per cent, down from the 2.2 per cent predicted in February.
But times change and after five years in which its forecasts have proved persistently overoptimistic, the OECD is becoming increasingly fretful. In February it projected growth would be 2%.
World markets went into a panic at the beginning of this year over the prospect of a sharp slowdown in China, which has been the source of most of global growth in recent years, but the OECD now sees growth moderating gradually thanks to recent government fiscal policy measures to support the economy.
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China’s growth forecast remains unchanged since the two previous Economic Outlooks, with 6.5-percent and 6.2-percent growth expected in 2016 and 2017, respectively.
