The global recovery is proceeding at a “moderate” pace in most of the major advanced and emerging economies, but the euro area is at risk of long-term stagnation, says the Organization for Economic Co-operation and Development (OECD) in its latest economic outlook.
The Paris-based OECD reports that the outlook for economic expansion is uneven across regions. “Growth will be strong enough to push unemployment down further in the United States, the United Kingdom and Canada,” it says. It predicts that Canadian growth will be 2.3% this year and 2.7% in 2015.
The OECD also projects that the U.S. will grow by 2.1% this year and by 3.1% in 2015; and, it says that the UK is expected to grow by 3.1% in 2014 and 2.8% in 2015.
In the countries that use the euro, the OECD cut its forecast for this year to 0.8 per cent from 1.2 per cent in its May assessment. The OECD notes that growth prospects differ widely among the major euro area economies. For instance. Germany is forecast to grow by 1.5% in both 2014 and 2015, whereas Italy is expected to decline by 0.4% in 2014, and to gain just 0.1% in 2015.
The euro area “runs the risk of prolonged stagnation if further steps are not taken to boost demand,” the OECD says. And, it recommends more monetary support for the Euro area, “given the low-growth outlook and the risk that demand could be further sapped if inflation remains near zero, or even turns negative.”
It says that the recent actions of the European Central Bank (ECB) are a step in the right direction, but that more is required, including quantitative easing. “Given the weakness of demand, European countries should also use the full degree of flexibility available within the EU’s fiscal rules,” it says.
Finally, among the advanced economies, the OECD forecasts that Japan will grow by 0.9% this year, and 1.1% in 2015.
Turning to the emerging economies, as a group, the OECD says that they will continue to grow much faster than the advanced economies. China is expected to grow by 7.4 % in 2014 and 7.3% in 2015. India is seen growing by 5.7% in 2014 and 5.9% in 2015. And, Brazil is predicted to grow by just 0.3% this year, before accelerating to 1.4% next year.
“The global economy is expanding unevenly, and at only a moderate rate. Trade growth therefore remains sluggish and labour market conditions in the main advanced economies are improving only gradually, with far too many people still unable to find good jobs worldwide. The continued failure to generate strong, balanced and inclusive growth underlines the urgency of undertaking ambitious reforms,” said OECD deputy secretary-general and acting chief economist, Rintaro Tamaki, in presenting the outlook.
With countries facing such diverging outlooks, macroeconomic policy needs are becoming increasingly diverse, the OECD suggests. “The euro area needs more vigorous monetary stimulus, while the U.S. and the UK are rightly winding down their unconventional monetary easing,” Tamaki said. “Japan still needs more quantitative easing to secure a lasting break with deflation, but must make more progress on fiscal consolidation than most other countries.”