The Organisation for Economic Co-operation and Development (OECD) yesterday sharply lowered its global growth forecasts for this year and next year, dragged down partly by a “transitory” shortfall in US performance and by businesses and governments skimping on investment.
“Global growth is projected to strengthen in the course of 2015 and 2016, but will remain modest relative to the pre-crisis period,” the OECD said.
It predicted the world economy would grow at a rate of 3.1 percent this year, down from the 4 percent increase it projected in March.
The growth forecast for next year has been revised downward half a percentage point, from 4.3 to 3.8 percent, with an expectation that the world economy “will strengthen gradually to approach its past [pre-crisis] average pace by late 2016.”
The OECD, a Paris-based policy analysis body grouping 34 advanced economies, slashed its outlook for the US from 3.1 percent and 3 percent to 2 percent and 2.8 percent for this year and next respectively.
“Activity should regain steam, with aggregate demand propelled by continued employment gains, wealth effects from rising asset prices, and the boost to purchasing power from lower oil prices,” the think tank said.
China, too, is to grow more slowly than the OECD predicted in March, by two-tenths of a percentage point lower in both years, at 6.8 percent and 6.7 percent this year and next year.
“Consumption will remain robust” in China, where growth is to be spurred by stepped-up infrastructure investment, it said.
The OECD said that overall, “the economic recovery from the global financial and economic crisis that broke out in 2008 has been unusually weak.”
The knock-on effects have included continuing job insecurity, sluggish development in emerging economies and “rising inequality nearly everywhere,” the report said.
However, the OECD said it expected growth “to be shared more evenly across regions of the world” in the coming period.
Its outlook for the eurozone was unchanged for this year and slightly rosier for next year, at 2.1 percent from 2 percent due to lower oil prices, a weak euro, better financial conditions and fresh stimulus spending.
However, unemployment in the eurozone is to remain stubborn, declining to a still painful 10.25 percent by the end of next year, the OECD said.
The report chided businesses and governments for what it called “tepid” investment.
“By and large, firms have been unwilling to spend on plant, equipment, technology and services as vigorously as they have done in previous cyclical recoveries,” it said.
“Moreover, many governments postponed infrastructure investments as part of fiscal consolidation,” it said, with negative effects on employment and wages, and therefore consumption.
Among global risk factors the OECD cited were new drops in oil prices; failure to reach a “satisfactory” deal between Greece and its creditors; a “hard landing” in China; and a “disorderly exit” from Washington’s zero interest rate policy.
The OECD said it expected oil prices to “stabilize above current levels,” but well below the US$110 per barrel average of the three years preceding last year’s precipitous drop.
It also urged a further easing of monetary policy in China “to stabilize growth and contain deflationary pressures.”
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