OECD slashes growth forecasts for leading economies

The global economy faces headwinds from a sluggish eurozone and rising political tensions, including the uncertain outcome of Scotland's independence referendum, a leading thinktank has warned.

The Organisation for Economic Co-operation and Development (OECD) has slashed its growth forecasts for advanced economies and called on the European Central Bank to use quantitative easing to shore up the eurozone.

Updating its economic outlook ahead of a G20 meeting of finance ministers in Australia this week, the Paris-based OECD described continued slow growth in the euro area as the "most worrying feature" of its new projections.

OECD deputy secretary-general Rintaro Tamaki said: "The global economy is expanding unevenly, and at only a moderate rate. Trade growth therefore remains sluggish and labour market conditions in the main advanced economies are improving only gradually, with far too many people still unable to find good jobs worldwide.

"The continued failure to generate strong, balanced and inclusive growth underlines the urgency of undertaking ambitious reforms."

The OECD now forecasts eurozone GDP growing just 0.8% this year, down from the previous forecast for 1.2% growth made in May's outlook. In 2015, the OECD expects the eurozone to grow 1.1%, down from 1.7% forecast in May.

It also cut its US GDP forecast for this year to 2.1% from 2.6%. For the UK just shaved off 0.1 percentage points to 3.1%. The forecast for the UK in 2015 was edged up to 2.8% from 2.7%.

The thinktank highlighted Thursday's upcoming referendum on Scotland's independence among several risks for growth.

It wrote: "Geopolitical risks have grown in recent months, with an intensification of conflicts in Ukraine and the Middle East and increasing uncertainty about the outcome of the referendum on Scottish independence."

But it was the eurozone that drew the most attention from the OECD's economists, who called on the ECB to do more on top of already stepping in with rate cuts and bond-buying programmes.

"Given the low-growth outlook and the risk that demand could be further sapped if inflation remains near zero, or even turns negative, the OECD recommends more monetary support for the euro area," said the thinktank. "Recent actions by the European Central Bank are welcome, but further measures, including quantitative easing, are warranted. Given the weakness of demand, European countries should also use the full degree of flexibility available within the EU's fiscal rules."

The ECB surprised markets earlier this month as it unveiled fresh measures to boost the flagging eurozone economy. Policymakers cut the already ultra-low main interest rate from 0.15% to 0.05%. They also made it more expensive for banks to park money with the ECB – cutting the deposit rate, which was already negative, from -0.1% to -0.2% in the hope of persuading banks to lend more to businesses and consumers.

The central bank also announced further measures to encourage lending by buying asset-backed securities but stopped short of embarking on full-scale quantitative easing (QE) which would potentially involve the bank purchasing government debt.

Powered by Guardian.co.ukThis article was written by Katie Allen, for theguardian.com on Monday 15th September 2014 11.38 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010


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