OECD trims developed world growth forecast as risks build
Euro-area GDP is now expected to expand 0.8% this year, down from 1.2% in May, while the US will expand 2.1% instead of 2.6%
Paris: The Organization for Economic Cooperation and Development (OECD) trimmed its growth forecasts for the biggest developed economies in the face of increasing geopolitical risks and subdued European inflation.
Euro-area gross domestic product is now expected to expand 0.8% this year, down from 1.2% in May, while the US will expand 2.1% instead of 2.6%, the Paris- based OECD said on Monday in a report.
“The bullishness of financial markets appears at odds with the intensification of several significant risks," the organization said. “Continued slow growth in the euro area is the most worrying feature of the projections."
The MSCI All Country World Index has gained 6% this year even as conflicts in the Ukraine and the Middle East have intensified and inflation in the euro-area has dipped to a fraction of the European Central Bank’s target rate.
The OECD, which advises its 34 member governments on economic policy, urged European officials to learn lessons from Japan where inflation expectations didn’t flag a later descent into deflation.
“The experience of Japan in the 1990s is a reminder that such expectations measures can be poor predictors of the actual future rate of inflation," the OECD said. “The 6-to-10 year consensus expectations in Japan were similarly near 2% in the early 1990s, failing to foresee the descent into deflation."
The OECD cut its Gross domestic product (GDP) forecasts for Germany, France and Italy to 1.5%, 0.4% and a contraction of 0.4%, respectively. In 2015, those economies will grow 1.5%, 1% and 0.1%, generating growth of 1.1% for the euro area as a whole.
Brazil, China
Similarly, in Brazil the OECD foresees a weak investment and uncertainty related to looming elections as keeping growth below potential at 0.3% this year and 1.4% in 2015.
The outlook for other economies is brighter. The OECD sees Japan expanding 0.9% this year and 1.1% in 2015, while China is on track to grow 7.4% and 7.3%. India, the only major economy to have its growth forecast raised this year, will expand 5.7% in 2014 and 5.9% next year, the OECD said.
The OECD sees US GDP growing 3.1% in 2015.Growth in the UK is currently pegged at 3.1% in 2014 and 2.8% next year.
“In the US, the moderate underlying expansion remains broadly on track," the OECD said. “China has so far managed to achieve an orderly growth slowdown" and “in India, confidence and spending have improved markedly during 2014 as a result of progress to control inflation and the perception that the new government will re-invigorate growth-oriented reform." Bloomberg
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