The OECD on Tuesday knocked almost half a percentage point off its forecasts for global growth this year and next, blaming a slowdown in emerging markets, brinkmanship over the US debt ceiling and concerns over the Federal Reserve’s tapering for the downgrade.
The Paris-based organisation promoting the world’s largest advanced economies said the global economy would expand 2.7 per cent this year and 3.6 per cent in 2014, compared with estimates of 3.1 per cent and 4 per cent, made in May.
However, the projection for UK growth next year was revised up by almost a percentage point to 2.4 per cent – the largest upgrade to any OECD country. For this year, growth was revised from 0.8 per cent to 1.4 per cent.
“In recent months, three events have already unsettled confidence and market stability,” said Pier Carlo Padoan, chief economist at the OECD. “First, the reaction to discussion in early summer regarding the tapering of asset purchases by the Fed was surprisingly strong. Second, increased concerns about developments in some EMEs [emerging market economies] added to market tensions and sharp capital outflows. Third, the United States came close to a potentially catastrophic crisis associated with its legislative ceiling on federal government debt.”
The forecasts come after gross domestic product data for the third quarter for the eurozone and Japan last week showed a slackening in the pace of growth in both economies. The OECD left the outlook for its 34 members, most of which are large advanced economies, unchanged, however. They would expand 1.2 per cent this year and 2.3 per cent in 2014, as forecast in May, the OECD said.
OECD cuts global growth forecasts! The biggest threat to the recovery was from spillovers from emerging markets’ banking systems, some of which had seen rampant credit growth since 2007.
The organisation called on emerging markets, most of which fall outside its membership, to accelerate the pace of reform to deal with deep-rooted fragilities. The Fed was advised to abandon tapering until the outlook improved and resist lifting rates until 2015.
The eurozone’s recovery was “lagging and uneven” and the European Central Bank should consider easing policy again if deflationary risks became more serious, the OECD said. The establishment of a banking union needed to be expedited, while any holes in banks’ balance sheets had to be “credibly identified” by forthcoming stress tests and the ECB’s asset quality review.
The OECD expected the euro area to expand by 1 per cent in 2014 – down slightly from the May estimate of 1.1 per cent. But its forecast for the currency bloc for 2013 was upgraded 0.2 percentage points to a contraction of 0.4 per cent. The US economy would grow 2.9 per cent next year, it said.