Economy

OECD Lowers Expected 2016 and 2017 Global GDP Growth Targets

Jon C. Ogg

Published: February 18, 2016 3:47 pm

Last Updated: January 13, 2020 1:01 pm

We have yet more downgraded growth expectations for 2016. The Organization for Economic Cooperation and Development (OECD) has said that achieving strong growth in the global economy remains elusive. The latest Interim Economic Outlook sees only a modest recovery in advanced economies and slower activity in emerging markets, with the world economy being likely to expand no faster in 2016 than in 2015.

If the OECD is correct, then 2016 will show the slowest global growth in five years. Trade and investment remain weak, and sluggish demand is leading to low inflation and inadequate wage and employment growth.

Thursday’s downgrade in the global outlook is spread across both advanced and major emerging economies. The OECD also said that the largest impacts are expected in the United States, the euro area and economies reliant on commodity exports, like Brazil and Canada.

Another warning was made that financial instability risks are substantial, which has been seen by recent falls in equity and bond prices worldwide. There is also an increasing vulnerability of some emerging economies to volatile capital flows and the effects of high domestic debt.

The OECD is forecasting that the global economy will grow by 3% in 2016 and 3.3% in 2017. This is said to be well below the long-run averages of around 3.75%. Unfortunately, the OECD also said that this subpar growth is also lower than would be expected during a recovery phase for advanced economies. Regional growth rates were projected as follows:

• The United States will grow by 2.0% in 2016 and by 2.2% in 2017.
• Canada will grow by 1.4% in 2016 and 2.2% in 2017.
• The euro area as a whole is projected to grow 1.4% in 2016 and 1.7% in 2017.
• Germany is forecast to grow by 1.3% in 2016 and 1.7% in 2017.
• France should grow 1.2% in 2016 and 1.5% in 2017.
• Italy grows by 1.0% in 2016 and by 1.4% in 2017.
• China is projected to grow by 6.5% in 2016 and 6.2% in 2017.
• India should continue to grow robustly, by 7.4% in 2016 and 7.3% in 2017.
• Brazil’s economy is experiencing a deep recession and is expected to show contraction at -4% in 2016 and only to begin to emerge from the downturn next year.

The Interim Economic Outlook calls for a stronger policy response and a changing the policy mix to confront the current weak growth more effectively. Another view is that monetary policies should remain highly accommodative in advanced economies, until inflation has shown clear signs of moving durably toward official targets. Stronger fiscal policy responses and renewed structural reforms are needed to support growth and provide a more favorable environment.

The OECD official statement said:

Global growth prospects have practically flat-lined, recent data have disappointed and indicators point to slower growth in major economies, despite the boost from low oil prices and low interest rates. Given the significant downside risks posed by financial sector volatility and emerging market debt, a stronger collective policy approach is urgently needed, focusing on a greater use of fiscal and pro-growth structural policies, to strengthen growth and reduce financial risks.

With governments in many countries currently able to borrow for long periods at very low interest rates, there is room for fiscal expansion to strengthen demand in a manner consistent with fiscal sustainability. The focus should be on policies with strong short-run benefits and that also contribute to long-term growth. A commitment to raising public investment would boost demand and help support future growth.