Pay heed to OECD’s ‘spur growth’ advice

Organisation for Economic Cooperation and Development’s (OECD) stern caution on Wednesday is another fresh warning that the global economy could slip into recession if the top and emerging economies do not step up spending on development. The wariness follows weak recovery since the global economic crisis in 2008 and signs of global economic growth slowdown sparked by poor performance of China and Brazil economies as well as the lower oil prices, which have started picking up.
The OECD reviewed its forecast for global growth this year to 3.0 percent, down from the 3.6 percent it forecast in October. For 2017, it now sees 3.3 percent growth.
“The longer the global economy remains in the low-growth trap, the more difficult it will be to break the negative feedback loops, revive market forces, and boost economies to the high-growth path,” said Catherine Mann, the chief economist at the OECD.
Mann shared this view with many competent international bodies who stressed the need for governments to ramp up spending, especially in the infrastructure.
OECD sees the slow growth as a tip of an iceberg that could take the world back into another deep downturn. Apart from the global slowdown, there are geopolitical risks to the global economy such as Brexit, conflicts and terrorism.
Commentators have blamed rich world governments for failing to revive demand and failing overhaul their economies in the wake of the financial crisis in 2008.
However, collective action is needed through spending on the infrastructure. The developed world has to help states most hit by the economic crisis. The recent EU and IMF move to bail out Greece from its crisis is a step in the right direction.
Experts believe that without comprehensive, coherent and collective action, disappointing and sluggish growth will persist, making it increasingly difficult to make good on promises to current and future generations.
The weak demand has forced businesses not to invest, triggering unemployment and income inequality. This reflected on consumption putting brakes on spending.
Despite the efforts of central banks to support the global recovery with ultra-low interest rates and stimulus measures, world markets went into a panic at the beginning of this year over the prospect of a sharp slump in China, which has been the source of most of global growth in recent years. The worldwide recovery is set to stall this year, with output growing 3 percent. That forecast is unchanged from the organisation’s February 18 estimate and it would match the pace seen in 2015. Expansion should accelerate to 3.3 percent next year, the OECD said.
OECD forecasts China’s growth rate will slip to 6.5 percent this year, and then 6.2 percent in 2017. The strong dollar is expected to slow growth in the United States to 1.8 percent this year, from 2.4 percent last year. Meanwhile, the eurozone is seen as marking time at 1.6 percent growth. Japan should get a marginal boost, with growth of 0.7 percent this year, but then stumble to a mere 0.4
percent expansion in 2017.
The OECD’s message echoes the mantra of European Central Bank (ECB) President Mario Draghi, who has long called for governments to do more to stimulate growth. After the ECB’s April policy meeting, he said that “in order to reap the full benefits from our monetary policy measures, other policy areas must contribute much more decisively”.
While the OECD left its global growth forecast unchanged, it has rightly cut its 2016 projections for growth in the US and Japan, while lifting the euro area.
Ireland, Luxembourg and the Netherlands would be the first of Britain’s EU partners to bear the brunt if voters back an exit from the European Union.
Major and emerging economies should heed advice from OECD and IMF to spend more and more on the infrastructure to spur growth.