Global GDP growth revised down, OECD

The OECD has revised its global GDP growth forecast for 2013 to 2.7% from 3.1% in May.

However, the Organization for Economic Co-operation and Development (OECD) says world economic growth will accelerate by the end of 2014.

Although global GDP growth is expected to be moderate over the coming 24 months, the OECD in its latest Economic Outlook urges governments to make sure that instability in financial markets and some underlying weaknesses in a number of major economies do not undermine growth.

Global GDP growth is real but slow

Angel Gurría, OECD Secretary-General said in Paris today:

“The recovery is real, but at a slow speed, and there may be turbulence on the horizon. There is a risk of another bout of brinkmanship in the US, and there is also a risk that tapering of asset purchases by the US Federal Reserve could bring a renewed bout of instability.”

”The exit from non-conventional monetary policy will be challenging, but so will action to prevent another flare-up in the euro area and to ensure that Japan’s growth prospects and fiscal targets are achieved.”

The OECD makes the following forecast regarding its 34 members:

• 2013 growth, 1.2%
• 2014 growth, 2.3%
• 2015 growth, 2.7%

The OECD makes the following forecast regarding global GDP growth (average of all countries in the world):

• 2013 growth, 2.7%
• 2014 growth, 3.6%
• 2015 growth, 3.9%

The downward revision for global GDP growth forecasts is mainly due to a worsening outlook among some emerging economies, the report said.

Growth predictions for advanced economies

OECD growth predictions for the US, Japanese and Eurozone economies are:

• 2014 growth – USA 2.9%, Japan 1.5%, Eurozone 1%.
• 2015 growth, USA 3.4%, Japan 1%, Eurozone 1.6%.

Although China’s economic growth has recently started to accelerate, it will continue to be more moderate than previously predicted.

Mexico, Israel, South Korea and Chile, all OECD members, will have faster GDP growth than the other OECD members.

Current global GDP growth is comparatively slow

Compared to previous economic recoveries, this one remains weak and contains several downside risks. The report describes world trade growth as “worrisome”, as do fixed investment and direct investment flows.

Global GDP growth is comparatively slow this time round.

Stubbornly high unemployment persists, especially in Europe were it is not expected to fall below 12% until the end of 2015.

However, looking at the European Union’s (EU’s) average unemployment rate is misleading. The EU’s southern members have extremely high unemployment, while in others it is low:

Unemployment in some EU member states:

• Germany – 5.2%
• Austria – 4.9%
• Denmark – 7.1%
• UK – 7.6%
• Spain – 26.6%
• Greece – 27.6%

The United States

American monetary policy should remain accommodative, the OECD says. The report suggests the tapering of the stimulus package by the Federal Reserve should be gradual, otherwise there is a risk of serious consequences for several vulnerable emerging nations.

The fiscal deadlock should be addressed, the authors add. The nominal debt ceiling should be abolished and a coordinated medium-term fiscal plan implemented.

Eurozone

The OECD welcomes the ECB’s (European Central Bank’s) recent rate cut, and adds “further easing may be required if deflation risks intensify”.

The planned stress tests and asset quality reviews of Eurozone banks should be “rigorously implemented”, followed where needed by bank re-capitalization. Further progress toward banking union is also encouraged.

Japan

Prime Minister of Japan, Shinzō Abe is encouraged to carry on implementing the “three arrows” of Abenomics as part of a drive to address the country’s long-term deflation problem.

Japanese growth needs to get onto a sustainable path, the report added.

During the Economic Outlook presentation in Paris, OECD Chief Economist Pier Carlo Padoan said:

“Growth since the global crisis has been uneven and hesitant, while job creation has been even more disappointing. Clear and credible strategies are needed for how jobs and growth will be created and public finances restored. This will require a strong commitment to structural reforms in advanced and emerging market economies alike.”