Global growth prospects dim, slowest in six years: OECD

oecd

Nov 13, 2015 (LBO) – Global growth prospects have dimmed again with the global economy expanding by less than three percent in 2015, the weakest for six years, the OECD said launching its Economic Outlook, November 2015.

Below the long-run average, this growth reflects further weakness in emerging market economies, recessions in Brazil and Russia and the slowdown in China hitting activity in key trading partners.

“We have become used to a familiar pattern: spring-time optimism followed by downgrades in growth forecasts as the year progresses. 2015 is no different,” Angel Gurría, Secretary-General of OECD, said.

Gurría made little direct reference to the Middle East conflict, but said Europe was facing the biggest refugee influx since the Second World War.

The Organization for Economic Cooperation and Development has 34 member countries from North and South America, Europe and Asia-Pacific including advanced economies such as United States, Japan and United Kingdom and emerging economies like Mexico, Chile and Turkey.

Global trade appears to have stagnated and even declined since late 2014, with the weakness centering increasingly on emerging markets, particularly China.

“This is deeply concerning as robust trade and global growth go hand in hand. In 2015 global trade growth is expected to grow by a disappointing 2 percent,” Gurría said.

Over the past five decades there have been only five other years in which trade growth has been 2 percent or less.

Business investment also remains subdued, rising by an anaemic 3.3 percent per annum over 2015-16 in OECD economies. And credit remains subpar in many advanced countries, particularly in the euro area.

From these weak beginnings, the OECD expects global growth to strengthen gradually and reach 3.6 percent by 2017.

Between now and 2017, unemployment in OECD countries is expected to fall to 6.3 percent. But that’s still 39 million people who would be out of work in OECD countries, over 6 million more than before the crisis started, the report said.

“The outlook for EMEs is a particular source of global uncertainty, given their large contribution to global trade and GDP growth in the last few years. Many have been hit by lower commodity prices, some by weak export demand.”

The G-20 leaders will meet in Antalya this week to strengthen their resolve to address these challenges.

Three specific actions are key, Gurría said.

“First, we need to resist and turn back rising protectionism. Trade strengthens competition and investment and revs up the “diffusion machine” – the spread of new technologies throughout the economy – which will ultimately lift productivity,” he said.

“Second, we need to step up structural reform efforts, which have weakened in recent years. And here, I mean the whole range of structural reforms – education, innovation, competition, labour and product market regulation, R&D, taxes, etc.”

Thirdly, there is scope to adjust public spending towards investment. If done collectively by all countries, if the sector and projects chosen have high multipliers, and if combined with serious structural reforms, stronger public investment can give a boost to growth and employment and not increase the relative debt burden.

This Economic Outlook report also includes a chapter on climate change, in the run-up to the COP21 meeting in Paris.

“The fragility of economic recovery cannot be an excuse for policy inaction. In fact, there is a range of win-win policies that could support climate-friendly investment and boost global growth and trade,” Gurría said.

Europe is facing the biggest refugee inflow since World War II, he said. But given the right policies, asylum-seekers need not impose an unmanageable economic burden.

“If the migrants are successfully integrated into European societies, they are likely to benefit the host countries and, over time, turn out to be fiscally net positive.”

“The OECD has been working on the integration of migrants for over 40 years, and we stand ready to support the countries facing this challenge.”