Published: Thu, September 22, 2016
Economy | By Melissa Porter

Low-growth trap to continue; central banks creating 'market distortions': OECD

Low-growth trap to continue; central banks creating 'market distortions': OECD

The Organisation for Economic Cooperation and Development (OECD) cited uncertainty following the UK's Brexit vote and wider global growth woes for its assessment.

These forecasts have been reduced due to the impact of Brexit and a wider weakness in the broader global outlook.

"While markets have since stabilised, sterling has depreciated by around 10% in trade-weighted terms since the referendum", the think tank said.

The research body lowered its USA growth forecast for 2016 to 1.4% from 1.8%, and its Canada forecast to 1.2% from 1.7%, while nudging its projection for world economic growth down to 2.9% this year and 3.2% next.

That's the view of the Organisation for Economic Co-operation and Development, which has made a further modest downgrade to its world growth forecasts for this year and next. It now expects Brazil's economic contraction to be shallower than previously, forecasting a 3.3% drop in output this year as against a 4.3% decline in June.

The thinktank said it was still predicting a sharp slowdown in the economy, but that this would not happen until 2017.

The report highlighted that an appropriate reaction by the new chancellor, Philip Hammond, to increase public spending in his first major policy statement has prevented the anticipated decline.

The OECD cuts its euro area 2016 growth forecast to 1.5% from the previous 1.6%, with an expected further slowdown in 2017, with the estimate cut to 1.4% from 1.7%.

The Interim Economic Outlook renews calls for a stronger collective response using fiscal, structural and trade policies to boost growth.

In Europe, Britain is projected to have the lowest growth rate in 2017 after Italy, since its forecast was revised downward by one percentage point from the last report.

"If we could get back on track with the kind of trade growth that we had in the 1990s and 2000s, we would be able to return to productivity growth rates prior to the financial crisis", OECD chief economist Catherine Mann told Reuters in an interview.

The OECD has slashed its 2017 growth forecast for the United Kingdom in half as a result of the Brexit vote. It advised the U.S. Federal Reserve to continue a "gradual" raising of short-term interest rates, while saying an "accommodative" stance remains appropriate in the eurozone and Japan. "Poor growth outcomes combined with high inequality and stagnant incomes are further complicating the political environment, making it more hard to pursue policies that would support growth and promote inclusiveness". Low growth projections naturally weigh on analysts and internationally minded companies, who will be less ambitious with their trade goals as a result.

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