The Economy

OECD Cuts Growth Forecast On Q1 Slump

Report urges 'mutually reinforcing' policies to avoid risks and move global economy to more stable growth.
Katie Kuehner-HebertJune 3, 2015
OECD Cuts Growth Forecast On Q1 Slump

The world economy will expand 3.1% this year, lower than the earlier forecast of 3.7%, and lower than 2014’s growth of 3.3%, the Organization for Economic Cooperation and Development said Wednesday said in its semi-annual report.

OECD Chief Economist Catherine Mann told Bloomberg the group mainly lowered its 2015 forecast due to the first-quarter contraction in the U.S., followed by a softer expansion in China. The OECD is now forecasting the U.S. economy will grow 2% this year, down from 2.4% in 2014, and China will now grow 6.8% this year, down from 7.4%.

The report warns that a few “extraordinary negative event risks … could shift the global growth path substantially.”

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Those risks include “geopolitical upheavals and severe financial instability brought about by a disorderly exit from the zero interest rate policy in the United States, failure to reach a satisfactory agreement between Greece and its creditors, and a hard landing in China.”

“Avoiding these risks and moving the global economy to a higher and more stable growth path require mutually reinforcing monetary, fiscal, and structural policies,” the report says.

The investment outlook appears uncertain. While the projected pick-up in investment could remain elusive, the OECD says, “investment could respond more strongly than anticipated to an upturn in spending, reduced uncertainties, and recent structural reforms, particularly in the light of low financing costs.”

Mann told Bloomberg that the global economy in some respects is “moderately good.”

“There’s a lot of monetary accommodation, less fiscal drag; most countries are enjoying reduction in oil prices,” Mann said. “All of that is good news and yet what we’re getting is growth” that isn’t matching the average of the past two decades.