6th May 2014
Despite the world’s developed nations making better progress the Organisation for Economic Co-operation and Development (OECD) has cut its global growth forecast for 2014.
The international body urges that while it expects the global economy to strengthen over the coming two years urgent action is still required to further reduce unemployment and address other legacies from the crisis.
The OECD now anticipates that the world economy will grow at a 3.4% rate in 2014, down from its 3.6% projection last November. Its estimate of 3.9% growth in 2015 remains unchanged.
OECD Secretary-General Angel Gurría says: “Advanced economies are gaining momentum and driving the pick-up in global growth, while once-stalled cylinders of the economic engine, like investment and trade, are starting to fire again.
“But with the world still facing persistently high unemployment, countries must do more to enhance resilience, boost inclusiveness and strengthen job creation. The time for reforms is now: we need policies that spur growth but at the same time create opportunities for all, ensuring that the benefits of economic activity are broadly shared.”
Within the report it predicts the UK’s GDP to grow by 3.2% this year, falling back to 2.7% in 2015.
Among the major advanced economies, recovery is best established in the United States, which is projected to grow by 2.6% in 2014 and 3.5% in 2015. The report adds that the euro area will see a return of positive growth after three years of contraction: 1.2% in 2014 and 1.7% in 2015.
In Japan, however growth will be hit by the launch of much-needed fiscal consolidation measures, and it is expected to hover at 1.2% in 2014 and 2015
Financial conditions are improving in the advanced economies but tighter credit and supply side bottlenecks are damping growth in emerging economies. According to the report, Brazil, China, India, Indonesia, Russia and South Africa are projected to see GDP growth of 5.3% this year on average and 5.7% in 2015.
China however will again have the fastest growth among these countries, with rates just below 7.5% in 2014 and 2015.
While unemployment has begun falling from the historic levels seen in the wake of the crisis more than 44m people are projected to still be out of work across the OECD area at end-2015, 11½ million more than before the crisis.
The OECD highlights a series of policy requirements for further strengthening the recovery. It asserts that monetary policy needs to remain accommodative, especially in the euro area, where a further interest rate reduction is merited, given low and falling inflation, and in Japan, where asset purchases should continue as planned.
In the US, where the recovery is more firmly based, asset purchases by the Federal Reserve should be gradually phased out during 2014 and policy rates should start to be raised during 2015 says the OECD’s report.
With financial fragilities persisting in Europe, the OECD adds that it is urgent to improve the health of the banking sector, complete the establishment of a fully-fledged banking union and sustain momentum for further reforms.