OECD revises down global economic growth forecasts

OECD Chief Economist Pier Carlo Padoan: "Growth is driven by weak engines"

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Global growth for 2013 and 2014 has been downgraded "significantly" after weak prospects in emerging markets, says the Organisation for Economic Co-operation and Development.

Global GDP this year is now expected to grow by 2.7%, down from 3.1% forecast in May.

But it said global economic growth would speed up by 2015.

However, the OECD said the UK would grow by 1.4% this year, an upgrade from its forecast in May of 0.8%.

Analysis

It is achingly slow, but what this report points to is a protracted process of economic repair after the damage done by the financial crisis - and remember we are now five years on from its most intense phase.

The language is often downbeat: a "modest acceleration" in growth; unemployment to remain "stubbornly high" in several countries.

There is also something between a warning and plea to the United States to steer clear of a "potentially catastrophic crisis" over the government's borrowing limit, after a near miss in October.

There are elements in this outlook that are sunnier than the OECD's previous forecast. The UK economy is one example. It is said to have gathered momentum. But the global forecast has been lowered. It will grow if these predictions are right, but no real celebrations for a while yet.

UK growth would accelerate to 2.4% in 2014, above economists' expectations of 2.2%, it said.

It said signs of improvement were "particularly apparent" in the UK, and monetary policy was likely to remain "appropriate" for some time.

The OECD also revised down its global growth forecast for 2014, which it now estimates at 3.6%. In May, it had forecast 4%.

In a first estimate for 2015, it predicts growth of 3.9%.

Key risks

The OECD said "weakness" in the banking system was a "major drag" on growth in the euro area.

The "potentially catastrophic crisis" over the debt ceiling in the US and "strong" market reaction to its suggestion of tapering had also unsettled confidence, it said.

OECD chief economist Pier Carlo Padoan said: "Brinkmanship over fiscal policy in the United States remains a key risk and uncertainty."

Mr Padoan said hitting the debt ceiling could "knock the US and the global recovery off course".

He called for monetary policy in the US to "remain accommodative for some time".

The global economy would act as an "amplifier" for negative shocks from a "stronger slowdown" in emerging markets, Mr Padoan said.

He cited population trends in emerging economies, and the narrowing gap with advanced economies, as behind the "fragility".

Complacency fears

"Downside risks dominate and policy must address them," said Mr Padoan.

He said high levels of public debt in Japan created risks, but commended its export growth, rising consumer spending and rebound in business investment.

Mr Padoan warned governments about the risks of complacency as recovery gained momentum.

He said: "Policy inaction or mistakes could have much more severe consequences than the turbulence seen to date and jeopardise growth for years to come."

The OECD said the UK's projected growth would be supported by an upturn in gross fixed investments and exports, adding it had seen a "turnaround in private sector confidence".

A spokesperson for the UK Treasury said the upgrade provided "more evidence the UK's hard work is paying off" and the country was "on the path to prosperity".

They said: "Today's report also highlights the risks that remain to the recovery and urges the UK to stick to the government's plan that is growing the economy, lowering the deficit and inflation, and creating jobs."

Shadow treasury minister Chris Leslie said: "After three damaging years of flat-lining, this OECD forecast for the UK is welcome, but for millions of families this is still no recovery at all."

He said the OECD was right to highlight the need to boost housing supply in the UK.

Mr Leslie added: "We need a recovery that's built to last, so we must also bring forward infrastructure investment now to build thousands of affordable homes."

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