OECD cuts growth forecasts

  • Economy
  • Tuesday, 16 Sep 2014

PARIS: The Organisation for Economic Cooperation and Development (OECD) slashed its growth forecasts for major developed economies, urging much more aggressive European Central Bank (ECB) stimulus to ward off the risk of deflation in a subdued eurozone.

The call adds to growing pressure on the eurozone, and the ECB in particular, to boost growth ahead of a meeting of finance ministers and central bankers from the Group of 20 economic powers later this week in Australia.

Updating its growth forecasts for major developed economies, the OECD projected growth in the eurozone at only 0.8% this year and rising only slightly next year to 1.1% .

That marked a sizeable downgrade from its May Economic Outlook for the eurozone, when the Paris-based organisation forecast growth of 1.2% in 2014 and 1.7% in 2015.

In comparison, the OECD saw the US economy growing 2.1% this year before accelerating to 3.1% in 2015. In May the OECD forecast US growth of 2.6% this year and 3.5% next year.

The United States is set to push European countries at the G20 meeting to step up measures to boost demand and economic growth in the face of the risk of deflation, according to a senior official at the US Treasury on Friday.

The OECD said that though eurozone inflation, at a five-ear low in August of 0.4% , should strengthen as demand recovers, low levels close to zero raised the risk of deflation.

“Given the low growth outlook and the risk that demand could be further sapped if inflation remains near zero, or even turns negative, the OECD recommends more monetary support for the euro area,” the organisation said in a statement accompanying its forecasts.

“Recent actions by the ECB are welcome, but further measures, including quantitative easing, are warranted,” it added. The ECB recently cut the cost of borrowing to near zero and pledged to buy repackaged debt in an effort to encourage lending to credit-starved companies.

Turning to Japan, the OECD forecast growth of 0.9% this year and 1.1% next year as the economy recovers after a sales tax hike in April muted consumer demand in the first half. The OECD trimmed its estimates from May for growth this year of 1.2% and 1.3% in 2015. Outside of the OECD member countries, the group saw growth roughly stable in China at 7.4% this year and 7.3% in 2015, both unchanged from its estimates in May. – Reuters

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