Global growth is expected to lag this year and next, but for the first time in a long time, it's not all Europe's fault.
Global growth is expected to lag this year and next, but for the first time in a long time, it’s not all Europe’s fault.
That’s the view of a leading international economic body, which said Tuesday that a slowdown in emerging economies and the potential for another U.S. budget crisis are the main sources of concern for the global economy.
In its half-yearly forecast, the Organization for Economic Cooperation and Development lowered its forecast for global growth this year to 2.7 percent and 3.6 percent for next. In May, it had predicted 3.1 percent and 4 percent growth, respectively.
“We can’t get (the world economy) out of first gear,” said Angel Gurria, the secretary-general of the organization, a think tank for the world’s most developed economies. While it has no policymaking power, the OECD’s forecasts are closely watched and its recommendations are influential in government circles.
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Just as the economy of the 17-country eurozone is emerging from its longest-ever recession brought on by a debt crisis, other economies are beginning to slow.
Emerging markets, which have helped shore up global growth in recent years, are beginning to lag, partially over fears that a pickup in the U.S. economy will spell the end of cheap credit.
“The BRIICS (Brazil, Russia, India, Indonesia, China, South Africa) have been big machines of growth, they were pulling the world, and they are decelerating,” said Gurria.
Among those economies, Indonesia, for instance, is projected to grow 5.2 percent this year and 5.6 percent next. In May, the OECD was predicting at least 6 percent growth for both years. In India, the growth projection for this year has slid from 5.7 percent to 3.4 percent.
The Federal Reserve has pumped trillions of dollars into the U.S. economy in an attempt to keep interest rates low and get money flowing. The stimulus, which has been going on in various guises for years, has also helped sustain growth in emerging countries. Now businesses there are bracing themselves for the policy’s end.
The OECD also cautioned about the impact of another damaging fight over the U.S. budget. A little over a month ago, the U.S. narrowly avoided technically defaulting on some of its debts following a protracted and often dysfunctional battle in Congress over the budget and the raising over the debt ceiling.
“Brinkmanship over fiscal policy in the United States remains a key risk and uncertainty,” Pier Carlo Padoan, the OECD’s chief economist, wrote in a commentary accompanying the report.
The OECD recommended that the U.S. scrap its policy of capping borrowing with a debt ceiling and instead come up with a more reasoned plan to reduce debt.
But with the risk that the U.S. won’t come up with such a plan in mind, the OECD slightly lowered its expectations for U.S. growth, saying GDP would rise 1.7 percent this year and 2.9 percent next.
The eurozone, on the other hand, is beginning to improve, the OECD said, although risks remain. It predicted that, overall, the eurozone will shrink 0.4 percent this year, as compared with the 0.6 percent slide forecast in May.
But the report warned that the recovery is uneven, and unemployment won’t begin to fall — from very high levels — until next year.