Disappointed in world economy, OECD cuts growth outlook

PARIS — The Organisation for Economic Cooperation and Development (OECD) on Thursday lowered its expectations for global growth, saying it was disappointed with the world's economic performance, and urging governments to do better.

Global growth of gross domestic product (GDP) for 2016 is now projected at 3 per cent, down from a previous forecast of 3.3 per cent, as financial instability, sluggish demand and weak investment take their toll, the 34-member OECD indicated in its latest interim outlook.

If confirmed, this would be no better than last year's growth, "itself the slowest pace in the past five years", the OECD quipped, adding that economic actors had failed to make good use of cheap oil and easy credit.

"Global growth prospects have practically flat-lined, recent data have disappointed and indicators point to slower growth in major economies, despite the boost from low oil prices and low interest rates," OECD Chief Economist Catherine Mann told a news conference.

The forecast came in well below a long-run average of around 3.75 per cent, the OECD said, expressing disappointment that advanced economies "in recovery" and emerging economies in "convergence mode" were still failing to produce better results.

The OECD urged governments to adopt a strong collective response to revive sagging global growth by implementing fiscal policies favouring investment-led spending in a climate of austerity.

"Monetary policy cannot work alone," it added, in reference to high-profile action by leading central banks to cut interest rates and inject money into the banking system.

Instead, fiscal policy also needed to become expansionary and structural economic reform accelerated "to strengthen growth and reduce financial risks".

In its November outlook, the OECD had already downgraded its initial 2016 estimate, citing stagnating trade amid a slowdown in China.

But it said it felt compelled to do so again, while also revising downward an initial November projection for 2017 to 3.3 per cent from 3.6 per cent in an environment likely to impact most severely on the United States, the eurozone and economies reliant on commodity exports.

Tackle collectively

"A stronger collective policy response is needed to strengthen demand," indicated the organisation a week before Group of 20 finance ministers and central bank governors meet in Shanghai.

The downgrade reflects "a broad range of disappointing incoming data for the fourth quarter of 2015 and the weakness and volatility in global financial markets", trends "apparent in both advanced and emerging economies", said the OECD, identifying as further risks emerging market currency volatility and debt, notably in Russia, Turkey and Brazil.

It added poor growth prospects were pushing down equity prices, helping to spark recent market volatility.

"Structural reform momentum has slowed," continued the OECD, identifying a combination of negatives affecting the global outlook, with fuel and commodity prices in a trough amid sluggish demand while China stays stuck in third gear.

The body, which repeatedly cut its 2015 outlook from an initial 3.7 per cent, noted that relatively healthy growth in emerging countries had in previous years partially compensated for a slowdown in advanced nations, but this was no longer the case.

"Sluggish growth is reflected in weak trade and has contributed to recent falls in commodity prices," it said.

One means of reviving growth would be to commit to greater public investment, recommended the OECD, which provides policy analysis and advice to its member states.

Although global trade flows are edging back from last year's stormy waters, they "remain subdued" with lower export demand for advanced economies flattening growth last year by around five percentage points.   

On a country by country basis, the OECD reduced its 2016 GDP growth forecast for the United States by 0.5 points to 2 per cent.

For sputtering European Union locomotive Germany, it cut its 2016 prediction also by 0.5 points to 1.3 per cent, compared to Berlin's own forecast of 1.7 per cent.

The forecast for China was unchanged on the November assessment of 6.5 per cent, Japan was revised down 0.2 points to just 0.8 per cent while India got a small upward revision of 0.1 points to 7.4 per cent.

But Brazil, in freefall after being hit severely by plunging commodity prices and falling Chinese-led demand, was downgraded by 2.8 percentage points to a 4 per cent contraction.