You are here

OECD cuts 2016 growth forecast to 3%

[PARIS] The OECD on Thursday cut its 2016 economic growth forecast to 3.0 per cent from 3.3 per cent owing to disappointing data, sluggish demand, weak investment and a high risk of financial instability.

"Financial instability risks are substantial," the 34-member Organisation for Economic Cooperation and Development (OECD) said in its latest interim outlook, urging a strong collective response to combat sagging global growth, which it predicts will not surpass 2015's already pallid showing.

The Paris-based body trimmed its outlook for this year as growth slows in many emerging countries and advanced economies only expected to achieve modest recovery after a 2015 that saw the slowest growth in five years.

In its November outlook, the OECD had already downgraded its initial 2016 estimate, citing stagnating trade amid a slowdown in China.

But it said it felt compelled to make a further downward revision both for this year while also revising downward an initial November projection for 2017 to 3.3 per cent from 3.6 per cent.

"A stronger collective policy response is needed to strengthen demand," said the organisation, noting "contractionary" fiscal policy in many major economies amid slowing structural reform.

The organisation identified furthers risk as emerging market currency volatility and debt, notably in Russia, Turkey and Brazil.

It that added poor growth prospects were pushing down equity prices, helping to spark the market volatility seen in recent weeks.

"Structural reform momentum has slowed," added the OECD, identifying a combination of negatives affecting the global outlook, with fuel and commodity prices in a trough amid sluggish demand while China stays stuck in third gear.

"Monetary policy cannot work alone" to achieve sustained growth, warned the OECD as it noted projected growth rates which "are the lowest in the past five years and well below long-run averages."

The body said that whereas relatively healthy growth in emerging countries had in previous years partially compensated for a slowdown in emerging nations, this was currently no longer the case.

"Global GDP growth is projected to be no higher than in 2015, itself the slowst pace in the past five years," it concluded.

On a country by country basis, the OECD saw across-the-board weakness. It reduced the forecast for the United States by 0.5 per cent to 2.0 per cent. For sputtering EU locomotive Germany, it cut growth by 0.5 per cent to 1.3 per cent, compared to the German government's own forecast of 1.7 per cent.

The cut for France was smaller at just 0.1 per cent down to 1.2 per cent - the Paris government current forecast is 1.5 per cent.

The forecast for China remained unchanged on the November assessment of 6.5 per cent while India enjoyed a small upward revision of 0.1 per cent to 7.4 per cent.

But Brazil, in freefall after being hit severely by plunging commodity prices and falling Chinese-led demand, was downgraded 2.8 per cent to a 4.0 per cent contraction.