Global economy recovering at moderate pace – OECD

The global economy is expected to continue expanding at a moderate pace over the coming two years, but policymakers must ensure that instability in financial markets and underlying fragility in some major economies are not allowed to derail growth, according to the OECD’s latest Economic Outlook.

“The recovery is real, but at a slow speed, and there may be turbulence on the horizon,” OECD Secretary-General Angel Gurría said during the Outlook launch in Paris. “There is a risk of another bout of brinkmanship in the US, and there is also a risk that tapering of asset purchases by the US Federal Reserve could bring a renewed bout of instability. The exit from non-conventional monetary policy will be challenging, but so will action to prevent another flare-up in the euro area and to ensure that Japan’s growth prospects and fiscal targets are achieved,” Mr Gurría said.

As the latest OECD’s outlook showed, GDP growth across the 34-member OECD is projected to accelerate from this year’s 1.2% rate to a 2.3% rate in 2014 and a 2.7% rate in 2015. The world economy, by contrast, will grow at a 2.7% rate this year, before accelerating to a 3.6% rate in 2014 and 3.9% in 2015. The pace of the global recovery is weaker than forecast last May, largely as a result of the worsened outlook for some emerging economies.

The outlook drew attention to a range of downside risks in this recovery, which is still weak by past standards. It points to a worrisome slowdown in world trade growth, in foreign direct investment flows and in fixed investment, as well as continuation of stubbornly high unemployment, particularly in Europe, where it is only expected to fall below 12% by the end of 2015.

Finally, the OECD said US monetary policy should remain accommodative, while proposing a gradual winding down of asset purchases by the Federal Reserve, to limit impacts on vulnerable emerging-market economies. I

The OECD also welcomed the recent European Central Bank rate cut, pointing out that further easing may be required if deflation risks intensify. It also called for rigorous implementation of the planned asset quality review and stress tests of euro area banks, followed by bank re-capitalisation, where needed, and further progress toward banking union.

 

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