By Judith Ugwumadu | 6 May 2014
The global economic recovery is strengthening but significant risks remain, the Organisation for Economic Co-operation and Development said today as it cut its growth forecast for this year.
Trimming its expectations, the OECD said growth across the world is predicted to be 3.4% this year, down from the 3.6% it predicted in November. The OECD attributed this cut to persistently high unemployment, growing inequalities and other legacies from the financial crisis. However, its outlook for 2015 remained unchanged at 3.9%.
OECD secretary-general Angel Gurría called for policy action in a number of areas to support the global economic recovery.
He said that many countries had made progress in consolidating their public finances, but efforts needed to be maintained ‘albeit at a more moderate pace, to bring down debt to more manageable levels’.
Gurría noted that the sole exception was Japan, where urgent and decisive action was needed to stabilise first and eventually start to bring down the very high debt level.
‘The time for reforms is now: we need policies that spur growth but at the same time create opportunities for all, ensuring that the benefits of economic activity are broadly shared,’ he said.
Growth across the 34-member OECD area was also revised down slightly from 2.3% to 2.2%, although is expected to hit 2.8% in 2015.
Among the major advanced economies, recovery is best established in the US, which is projected to grow by 2.6% this year and 3.5% in 2015, said the OECD.
However, in Japan, the OECD noted that growth would be dented by the launch of much-needed fiscal consolidation measures, and is expected to hover at 1.2% in both 2014 and 2015.
The think-tank added that financial conditions were improving in the advanced economies, but tighter credit supply side bottlenecks were damping growth in emerging economies. However, China is expected to grow at a faster rate reaching 7.5% this year, compared to other BRIICS countries which could see a growth rate of 5.3% in 2014 and 5.7% next year.
The OECD said that the euro area would see a return to positive growth after three years of contraction, with 1.2% in 2014 and 1.7% in 2015.
Its projections come after the European Commission said yesterday that growth would reach 1.6% across the entire European Union and 1.2% in the eurozone this year, before hitting 2% and 1.7% respectively in 2015. However, it warned that inflation was expected to remain low, both in the EU (1% this year) and in the eurozone (0.8%).
Echoing Gurría, the commission said that the largest downside risk to the growth outlook remains a renewed loss of confidence from stalled reforms.
‘Continued reform efforts by member states and the EU itself are paying off,’ said commission vice president Siim Kallas.
‘This ongoing structural change reminds me of the profound adjustment that the central and eastern European economies undertook in the 1990s and in subsequent years, linked to their joining the EU exactly 10 years ago.
‘Their experience shows how important it is to embrace structural reforms early on and to stay the course, whatever challenges may be faced along the way. In this spirit, we must not lessen our efforts to create more jobs for Europeans and strengthen growth potential.’
