Volatile times ahead for global economy, OECD warns

In its latest global forecast on Tuesday, the Organisation for Economic Co-operation and Development (OECD) kept to its previous forecast of global growth of 3.3 per cent this year and 3.6 per cent next but said that while economic confidence had improved, consumption, investment, trade and productivity remained fragile.“Falling trust in national governments and lower confidence by voters in the political systems of many countries can make it more difficult for governments to pursue and sustain the policy agenda required to achieve strong and inclusive growth,” the OECD said.“These tensions lead to less predictable outcomes, including on progress in implementing policy reforms.”

Modest recovery

The OECD report added that with only a modest recovery in prospect for most countries, buoyant stock markets worldwide were becoming disconnected from economic reality, especially as consumer spending and business investment remained weak.It warned of the dangers to many economies, especially China’s, of an increase in US interest rates in the near future and of the possibility of protectionist trade policies and import tariffs being adopted by President Trump.

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Nevertheless, the OECD slightly increased its forecast of US growth to 2.4 per cent this year on the back of growing domestic demand. But next year’s growth forecast was reduced from 3 per cent to 2.8 per cent.The forecast for GDP growth in the UK this year was increased from 1.2 per cent previously to 1.6 per cent, but the effects of rising inflation on businesses and consumer spending was predicted to peg back growth to 1 per cent next year.

Slower UK expansion

“In the United Kingdom, the pace of expansion in 2016 was lower than in previous years, despite support from resilient household spending, actions by the Bank of England and adjustment to the fiscal stance following the Brexit vote,” said the report.“UK growth is expected to ease further as rising inflation weighs on real incomes and consumption, and business investment weakens amidst uncertainty about the United Kingdom’s future trading relations with its partners.”Growth in the eurozone was forecast to be 1.6 per cent this year and next on the back of limited easing of fiscal policies.One danger to growth identified by the OECD was the steady increase in house prices in the UK, Australia, Canada and Sweden. “As past experience has shown, a rapid rise of house prices can be a precursor of an economic downturn,” the organisation said.“House price-to-rent ratios are at record highs in several countries and above long-term averages in many others. Although there has been a slower accumulation of household debt in recent years, mortgage-debt-to-income ratios remain high in many countries.”

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