OECD blasts loose money policies


  • Business
  • Thursday, 02 Jun 2016

PARIS: The global economy is slipping into a self-fulfilling “low-growth trap” where ultra-loose monetary policy risks doing more harm than good, the Organisation for Economic Cooperation and Development (OECD) warned.

In a highly critical editorial in the OECD’s latest economic outlook, rich world governments bear the brunt of the blame for failing to revive demand and failing to overhaul their economies in the wake of the financial crisis in 2008.

According to the Paris-based group, which advises its 34 member countries, too much of the burden of lifting growth has been left to central banks. After pushing interest rates below zero and pumping money into their economies through asset purchases, they are starting to see diminishing returns and their actions could even generate financial-market volatility.

“Monetary policy has been the main tool, used alone for too long,” OECD chief economist Catherine Mann said in the semi-annual report released yesterday. “In trying to revive economic growth alone, with little help from fiscal or structural policies, the balance of benefits-to-risks is tipping.”

Mann also said that “negative feedback loops are at work.” Lack of demand, global uncertainties and slow reform progress are deterring investment, while trade growth remains too weak, she said.

“Monetary policy cannot revive near and long-term growth by itself, and distortions are increasing,” the OECD said. Ultra- low and negative rates have stressed bank profitability and created financial strains for pension funds and insurers, while becoming “less potent” in stimulating consumption, it said.

The worldwide recovery is set to stall this year, with output growing 3 percent. That forecast is unchanged from the organisation’s Feb 18 estimate and it would match the pace seen in 2015. Expansion should accelerate to 3.3% next year, the OECD said.

“Fiscal policy must be deployed more extensively and can take advantage of the environment created by monetary policy,” Mann said in her editorial introducing the report. “Governments today can lock in very low interest rates for very long maturities to effectively open up fiscal space.”

The OECD’s message echoes the mantra of European Central Bank 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 cut its 2016 projections for growth in the US and Japan, while lifting the euro area.

US gross domestic product is now expected to expand 1.8 percent this year instead of the 2% predicted in February. The 2017 forecast is unchanged at 2.2%.

In the US, “growth hit a soft patch at the turn of the year,” the OECD said.

The Federal Reserve’s gradual policy will leave interest rates “supportive throughout the projection, which is broadly appropriate” given weakening inflationary pressures and ongoing weakness in global demand. – Bloomberg

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 1
Cxense type: free
User access status: 3
Join our Telegram channel to get our Evening Alerts and breaking news highlights

Business , oecd

   

Next In Business News

PBOC promises to protect consumers as Evergrande teeters
MyNews losses widen due to strict Covid-19 measures�
Dolomite Corp classified as PN17, unable to pay debts
AirAsia X posts record RM24.6bil net loss in Apr-June quarter�
Straits Energy eyes 5G rollout projects with partner Seashore�
Crude oil at 3-year high, Brent nears US$80 a barrel amid supply constraints
Protasco registers RM6.4mil profit in Q2, boosted by road maintenance works
Muted market response to 12MP
Malaysia's DuitNow, Singapore's PayNow to link in 2022
Asian shares creep higher, oil surges to 3-year peak

Stories You'll Enjoy


Vouchers