Economy recovers, but more risks ahead: OECD

PARIS

The world economy will grow at a 2.7 percent this year, before accelerating to a 3.6 percent rate in 2014 and 3.9 percent in 2015, the OECD says. REUTERS photo

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,” Gurría said.

GDP growth across the 34-member OECD is projected to accelerate from this year’s 1.2 percent rate to a 2.3 percent rate in 2014 and a 2.7 percent rate in 2015, according to the Outlook. The world economy, by contrast, will grow at a 2.7 percent this year, before accelerating to a 3.6 percent rate in 2014 and 3.9 percent 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.

Growth in the United States is projected at a 2.9 percent rate in 2014 and a 3.4 percent rate in 2015. In Japan, GDP is expected to drop to a 1.5 percent growth rate in 2014 and a 1 percent rate in 2015. The euro area is expected to witness a gradual recovery, with growth of 1 percent in 2014 and 1.6 percent in 2015. Growth has begun picking up in China but will remain weaker than previously projected in most other major emerging market economies. A group of emerging OECD member countries – Chile, Turkey, Mexico, Korea and Israel – will continue out-pacing growth in other advanced economies.

The OECD says 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.

It calls for an end to fiscal deadlock in the United States, through the abolition of the nominal debt ceiling and implementation of a co-ordinated medium-term fiscal plan.

Welcoming the recent European Central Bank rate cut, the OECD said further easing may be required if deflation risks intensify. It called for rigorous implementation of the planned asset quality review and stress tests of euro area banks.