Economic recovery takes hold

June 3, 2015 12:24 PM

The OECD has cut its global economic growth forecast for this year but says it expects lower oil prices to ensure a gradual recovery, even if weak investment remains a worry.

Growth is also being buoyed by ultra-supportive central bank policy in the big developed economies and in many places outside the United States by a stronger dollar, which makes the exports of other currency zones relatively cheaper.

The Paris-based Organisation for Economic Co-operation and Development, a think tank funded by its membership of primarily wealthy countries, cut its 2015 growth forecast to 3.1% from the 3.7% it was forecasting last November.

It said it expected a rise in pace to global gross domestic product (GDP) growth of 3.8% in 2016, with China's heady GDP expansion rate of recent years tapering to 6.8% in 2015 and 6.7 in 2016, from 7.4% last year.

U.S. growth, which dipped notably in early 2015, is now seen at 2.0% for the year, marginally lower than last year's 2.2%, before picking up to 2.8% in 2016.

Aided by the triple-booster of cheaper oil, European Central Bank asset-buying and the rise in the dollar exchange rate, the euro zone countries are expected to post GDP growth of 1.4% this year and 2.1% next year, the OECD said.

Ultra-supportive central bank policies have been aiding both the U.S. and European economies, and also Japan, where GDP this year is expected to be 0.7%, before 1.4% in 2016.

While commending the monetary policy responses and saying it saw oil prices adding a quarter of a%age point to growth rates in both 2015 and 2016, the OECD voiced concern.

"The main reason for the weakness in investment is the weak recovery itself and doubts over the prospects for stronger growth," the OECD said in its Economic Outlook.

"There are also specific reasons for individual countries: still tight lending conditions in parts of Europe, lower oil prices in North America, past investment excesses in China and continued adjustment in housing in much of the OECD."

Unemployment of about 7% at OECD level had now dipped back to the levels of 2008, when the international financial and economic crisis started to hit hard, but it remained noticeably high in the euro zone bar Germany, it said.

It forecast a euro zone jobless rate of 11.1% in 2015 and 10.5 in 2016, down from 11.5% in 2014. Even the drop over this year and next would still leave the euro zone jobless rate at double the expected U.S. rate of 5.2% in 2016 and well above the OECD average, seen at 6.6% in 2016.

For central banks, the OECD said "the gradual disappearance of slack in the United States, and the associated prospect of inflation moving to its target, calls for gradual increases in policy rates."

It added: "In the euro area and Japan, very low inflation warrants continued supportive monetary policy, as planned."

The International Monetary Fund last January trimmed its global growth forecasts by 0.3 points for both 2015 and 2016 to 3.5 and 3.7% respectively - not far off the OECD ones.

Unlike the OECD, the IMF raised its forecast for U.S. growth to 3.6% for 2015 from 3.1%, putting the pointer far above the OECD's 2.0% prediction for the world's largest economy. The OECD noted a bigger-than-expected dip in first-quarter GDP due to the dollar's strength and bad weather.

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