Finance Finance News OECD lowers growth outlook

OECD lowers growth outlook

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Growth in advanced economies will pick up speed this year and next, but mostly at a slower pace than forecast as new risks loom, especially from emerging economies, the OECD says.

Japan and the eurozone will both do slightly better than expected this year and next as austerity policies retreat, monetary stimulus is maintained and financial conditions improve, the OECD said on Tuesday.

But the US economy will grow less quickly than forecast, with the OECD pointing to political dysfunction in Washington and the eventual tapering of monetary stimulus as factors that could hamper recovery.

Global “outcomes this year and near-term prospects appear a little weaker than had been expected in May, at the time of the previous Economic Outlook,” the OECD said.

The organisation, a 34-nation policy forum for developed democracies, revised global growth of gross domestic product down by nearly half a percentage point both this year, to 2.7 per cent, and next, to 3.6 per cent.

The future of monetary stimulus in the United States has become a central risk worldwide, the OECD said, adding to long-standing problems, such as the fragility of eurozone banks and a decade of soaring Japanese public debt.

The OECD urged the US Federal Reserve central bank to maintain its ultra-easy monetary policy for some time, and it suggested that the European Central Bank consider extra action to relax monetary conditions.

The latest OECD outlook report said that old worries “have been augmented by new concerns, most notably the possibility of significant financial instability in advanced and, especially, (emerging economies) during the exit from unconventional monetary policies in the United States.”

Moreover, the OECD warned, if political battles in Washington were to make a debt ceiling in the United States binding next year, the outcome could have “extreme” effects on the world economy.