OECD warns of slackening growth in major economies

16 Sep 14

The Organisation for Economic Co-operation Development has slashed its growth forecasts for major developed countries.

The global economy is expected to maintain growth of 3% this year, down from the 3.4% the OECD predicted in May, the organisation said today.

In its latest update, which aims to bridge the May and November economic outlooks, the OECD warned that growth across the world would be uneven. It blamed geopolitical risks, which it said had worsened in recent months, in particular, in the Ukraine and the Middle East regions. It also said uncertainty about Thursday’s Scottish Independence referendum and the challenges of the euro area getting trapped in weak demand and low inflation caused confidence to slip.

The OECD said the outlook for 2014 and 2015 was uneven across regions. It predicted that the US would grow by 2.1% this year, down from 2.6% it forecast in May. The research body noted that although the US’s stimulus policy was working, the country needed to implement structural reforms to pursue more inclusive growth and increase public investment.

For the euro area, the interim report provided a ‘significantly more negative appraisal’ for its outlook, which was attributed to disappointing recovery in the largest economies – Germany, Italy and France. The OECD cut its forecast for 2014 to 0.8%, it predicated 1.2% in May. It said the euro area needed more monetary support, adding that recent European Central Bank action was welcome, but further measures, including quantitative easing programmes were warranted.

Presenting the report in Paris yesterday, OECD deputy secretary-general and acting chief economist Rintaro Tamaki, said: ‘[The outlook] is close to what we expected. Among the major economies’ growth in the first two quarters of this year was really, really uneven... and is expanding at only a moderate rate.

‘The continued failure to generate strong, balanced and inclusive growth underlines the urgency of undertaking ambitious reforms.’

While emerging economies as a group will continue to grow much faster than the advanced economies, the forecasts are similarly uneven across countries, the OECD said.

China is expected to grow by 7.4% in 2014. India is expected to grow by 5.7% in 2014, while Brazil is predicted to only grow by 0.3% this year, having fallen into recession in the first half of the year, and 1.4% next.