OECD trims growth outlook

The global economic outlook has grown darker than it was only a few months ago, but the US is doing well enough that its central bank should go ahead with its first rate increase since the financial crisis, the OECD yesterday said.

The world economy is set to grow 3% this year and 3.6% next year, said the Paris-based Organisation for Economic Cooperation and Development in an update of its forecasts for major economies.

It trimmed its estimates from 3.1% and 3.8% in June, citing primarily a slowdown in emerging market economies like China and Brazil.

“Global growth prospects have weakened slightly and become less clear in recent months,” said OECD chief economist Catherine Mann.

The US stood out as a bright spot. The OECD raised its growth outlook for this year to 2.4% from 2% in June.

It lowered its 2016 forecast to 2.6% from 2.8% previously, though.

The OECD saw more arguments in favour of the Federal Reserve raising interest rates than standing pat at today’s meeting rather than at their next meeting at the end of the year.

“Raising interest rates now would remove uncertainty in the markets,” Mann said.

The pace of future increases was more important than whether the Fed acted now or in December, according to the OECD’s simulations, she said: “The path matters four times as much as the timing.”

Looking at the eurozone, its outlook was the brightest in four years. Its growth was projected at 1.6% this year and 1.9% next year.

However, the bloc should be growing as much as a full percentage point faster, Mann said, with a weak euro and low interest rates and oil prices in its favour.

It was not because it remained too burdened by its debts, she said.

The eurozone’s priority should be repairing the banking system and tackling bad loans, she said, rather than extending or expanding the ECB’s bond-buying programme as some economists have suggested following recently weak inflation data.

The OECD slightly lowered its growth estimate for China to 6.7% for this year and 6.5% next year after a string of disappointing data and plunges on its stock market.

Brazil was a particularly weak spot in the global economic outlook.

The OECD forecast its economy would contract 2.8% this year and 0.7% next year as it struggles with a collapse in the price of commodities it exports.


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