OECD Calls for More Spending to Stimulate Growth

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The Organization for Economic Cooperation and Development (OECD) released its 2016 Economic Outlook Monday morning. The OECD represents 35 developed countries around the world and is focused on economic development.

The 2016 report is titled, “Escaping the Low-Growth Trap? Effective Fiscal Alternatives, Avoiding Trade Pitfalls,” and could have been written with the results of the U.S. election in mind, even though that is probably not what happened. The outlook focused on four key issues:

  • More active use of fiscal policy to raise growth modestly
  • High policy uncertainties and financial risks
  • Interweaving fiscal, structural and trade policies
  • Lowering political cost using collective action to enable greater gains

If you’re not sure what all that means, the OECD explains:

[F]iscal initiatives could catalyse private economic activity and push the global economy to the modestly higher growth rate of around 3½ per cent by 2018. Durable exit from the low-growth trap depends on policy choices beyond those of the monetary authorities – that is, of fiscal and structural, including trade policies – as well as on concerted and effective implementation. Collective fiscal action undertaken by all countries, including a more expansionary stance than planned in many countries in Europe, would support domestic and global growth even for those economies, who by virtue of specific circumstances, need to consolidate their fiscal positions or pursue a more neutral stance.

In its forecast for the United States, the OECD looks back at 2016 and forward to 2017:

Fiscal policy was broadly neutral in 2016. The new Administration will begin implementing its policy priorities next year and in this context the fiscal stance is projected to become more expansionary as public spending and investment rise, while taxes are cut. This will provide a boost to the economy, particularly in 2018. Action will be needed to ensure public finances are sustainable in the medium term.

The OECD is taking President-Elect Trump at his word that spending on infrastructure will skyrocket, the tax cuts will put more money in consumers’ pockets and that the country won’t go broke paying for it all. The report sidesteps promised changes to U.S. trade agreements, saying only: “Disruptions to international trade, including breaking global value chains would hurt growth.”