Global Economic Outlook: OECD Forecasts Lower Growth, Warns Of US Threat

The Organization for Economic Cooperation and Development on Tuesday shaved its forecasts for global economic growth this year and next, blaming a slowdown in emerging markets, a struggling euro zone, and the political and monetary policy uncertainty in the U.S.

In its twice-yearly Economic Outlook, the Paris-based research group revised down its forecast for global economic growth by around 0.5 percentage points this year and the next to 2.7 percent and 3.6 percent, respectively.

“The recovery is real, but at a slow speed, and there may be turbulence on the horizon,” OECD Secretary-General Angel Gurría said in a statement. “There is a risk of another bout of brinkmanship in the U.S., and there is also a risk that tapering of asset purchases by the U.S. Federal Reserve could bring a renewed bout of instability.

“The exit from non-conventional monetary policy will be challenging, but so will action to prevent another flare-up in the euro area and to ensure that Japan’s growth prospects and fiscal targets are achieved,” Gurría added.

The global recovery remains modest and uneven. The group warned that emerging-market growth has slowed, which could become a drag on developed countries due to reduced trade activities.

Growth in China, estimated at 8.2 percent next year after 7.7 percent this year, would be slower than the forecast issued in May. The OECD also cut its 2014 growth projection for Brazil to 2.2 percent from 3.5 percent in May and for India to 4.7 percent from 6.7 percent.

The euro zone is seen contracting 0.4 percent this year before swinging to 1 percent growth in 2014, while the U.S. is expecting growth of 1.7 percent and 2.9 percent over the same periods.

Meanwhile, driven by exceptional monetary stimulus this year, Japan is on course for growth of 1.5 percent in 2014, up from a May forecast of 1.4 percent, but down from 1.8 percent in 2013.

The OECD said the Fed should gradually wind down its $85 billion-a-month in bond buying if U.S. unemployment continues to fall and inflation strengthens. The think tank also urged Washington to end fiscal deadlock through the abolition of the nominal debt ceiling and implementation of a coordinated medium-term fiscal plan.

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