The Organisation for Economic Cooperation and Development (OECD) has again trimmed its global growth forecast slightly downward in its second economic outlook for the year, reflecting the weakness in Emerging Market Economies (EMEs). The Paris-based grouping predicts global GDP will expand by just 2.9% in 2015, down from 3% forecasted in its Interim Outlook this September. Eight years into the crisis this is the weakest growth since 2009. In its report, the OECD noted that the outlook for EMEs is “a key source of uncertainty at present given their large contribution to global trade and GDP growth”.
While the OECD predicts that global trade and output will recover in 2016/2017 assisted by stimulus measures in China, in his address at the launch of the report, OECD Secretary General, Jose Angel Gurria, emphasised that this improvement is dependent on a variety of factors, including “supportive macroeconomic policies, investment, continued low commodity prices for advanced economies and a steady improvement in the labour market”.
In anticipation of the COP21 UN Climate Change Conference in Paris, the OECD’s Economic Outlook report includes a chapter on climate change which calls for urgent action to address this global issue. In his address Secretary General Gurria stressed “we are on a collision course with nature and we have to change course” and urged that “the fragility of economic recovery cannot be an excuse for policy inaction”.
Key points from the Report
- Global output is expected to grow by 2.9 percent in 2015 (weaker than the 3 percent predicted in the September Interim Outlook), with a modest upturn to 3.3 percent in 2016 (slower than the 3.6 percent forecasted in the September Interim Outlook), provided there is smoothening of the slowdown in China and stronger investment in advanced economies.
- In contrast to 2011 and 2012 where EMEs were propelling global growth, lacklustre EME growth, including recessions in Brazil and Russia and a slowdown in China have negatively impacted global output and trade growth in 2015.
- Global trade growth has slowed and is precariously close to levels usually associated with a global recession. Noting the link between trade and economic growth, the OECD pointed out that softening Chinese demand for imports is responsible in part not just for the deceleration of global trade but has negatively affected growth in economies which are linked to the Chinese economy. In its report, the OECD noted that “a more significant slowdown in Chinese domestic demand could hit financial market confidence and the growth prospects of many economies, including the advanced economies”.
- Growth in the Chinese economy is projected to slow to 6.8 percent in 2015 (up slightly from 6.7 percent in the September forecast), 6.5 percent in 2016 and 6.2 percent in 2017 as the Chinese economy rebalances towards consumption and services activity.
- Advanced economies remain resilient so far. The growth forecast for the United States economy is 2.4 percent in 2015, 2.5 percent in 2016 and 2.4 percent in 2017. Despite steady recovery in output and in employment, workers pay is still subdued. The OECD has expressed its belief that the time is ripe for the Federal Reserve to raise interest rates. This would be the first interest hike by the US central bank since the recession began.
- Although recovery in the Eurozone is expected to strengthen, growth projections were downgraded from the September Interim Outlook. Eurozone countries are now expected to grow by 1.8 percent in 2016 and 1.9 percent in 2017 thanks to lower oil prices, accommodative monetary policy and an easing of budget tightening.
- The refugee surge to the EU is expected to promote labour force growth and help offset the effect of an ageing population but this will depend on several factors, including the skill set of the refugees and current labour market conditions.
- Unemployment in OECD countries is expected to fall but there will still be 39 million people out of work in OECD countries, six million more before the crisis started.
- Trade and investment protectionism, inequality and productivity are problems which must be countered in order for growth to be achieved. There is also need for accelerating structural reforms.
- A well-designed climate change policies can bring an improvement in short term outlook.
- The OECD will release a policy note looking at the labour market and fiscal impact of the European refugee surge in advance of the G20 summit in Antalya.
The full report and presentations on the OECD Economic Outlook may be found here.
Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can read more of her commentaries and follow her on Twitter @LicyLaw.