OECD predicts slow world recovery, urges ECB to do more

Global economy is set to grow by 3.3% this year, 3.7% in 2015 and 3.9% in 2016, Paris- based think tank says

The global economy will gradually improve over the next two years but Japan will grow less than previously expected while the Eurozone struggles with stagnation and an increased deflation risk, the OECD said yesterday.

There will be marked divergences among countries both in terms of growth and monetary policy, leading to volatility in debt and foreign exchange markets, the Organisation for Economic Cooperation and Development said.

The US and Britain will grow more strongly than the Eurozone and Japan and, among emerging countries, India, Indonesia and South Africa are set to recover steadily. Russia’s economy is set to stagnate next year and China’s will soften, the think tank said in its biannual economic outlook.

Overall, the global economy is set to grow by 3.3 per cent this year, 3.7 per cent in 2015 and 3.9 per cent in 2016, the OECD said, confirming forecasts published before the G20’ s summit earlier this month.

While most estimates remained unchanged, Japan’s forecast was more than halved for 2014 and cut to 0.8 per cent for next year after it unexpectedly fell into recession in the third quarter. But the OECD still expects Japan to recover.

A bigger worry for the Parisbased think tank is the euro area, which it said “may have fallen into a persistent stagnation trap”.

“The euro area is at risk of deflation if growth stagnates or if inflation expectations fall further,” it said.

Its inflation forecasts of 0.6 per cent for the euro area next year and 1.0 per cent for 2016 are slightly more pessimistic than the EU’s own forecasts and far from the European Central Bank’s target of just below 2 per cent. The OECD reiterated its call for the ECB to embark on quantitative easing in the Eurozone.