Sunday 4 December 2016

OECD upgrades growth forecasts for Ireland but warns on global trends and recession

Published 09/11/2015 | 12:03

China's economy grew by 6.9% in the three months ended in September (AP)
China's economy grew by 6.9% in the three months ended in September (AP)

The OECD has raised its GDP growth forecast for Ireland to 5.6pc for this year, from 5pc.

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It also raised its forecast for 2016,from 4pc to 4.1pc.

Last week the European Commission said that Ireland will growth by 6pc this year, three times faster than the European average.

However, on a global level, the Paris-based think thank was more bearish and warned of a global trade slowdown.

Global trade flows have fallen dangerously close to levels usually associated with a global recession, although actions taken by China and others should ensure a pick-up in 2016, it said in a report on Monday.

The Paris-based Organisation for Economic Co-operation and Development, a think tank funded by wealthy countries, also cut its 2015 growth forecast to 2.9 percent in its bi-annual economic outlook from the 3.0 percent it forecast in September.

It has repeatedly cut its 2015 growth outlook from the 3.7 percent it initially forecast last November.

The OECD said the U.S. Federal Reserve should nevertheless go ahead with its first rate hike since the financial crisis as a recovery gains steam in the United States and Europe, despite a slowdown mostly centered on emerging markets and China.

It said global trade would grow by only 2 percent this year, a level it has fallen to only five times in the past five decades and that coincided with downturns: 1975, 1982-83, 2001 and 2009.

"This is deeply concerning," OECD Chief Economist Catherine Mann said in the introduction to the report.

"World trade has been a bellwether for global output."

But the organization said it expected global output growth to pick up to 3.3 percent next year helped by stimulus measures in China, albeit less than the 3.6 percent it expected previously, before accelerating to 3.6 percent in 2017.

"Policy actions are already being implemented that will help to address the weak underlying trends. For example, China has announced a range of stimulus measures including lowering bank lending rates and expanding infrastructure investment," Mann said.

Growth in the United States should reach 2.4 percent this year and 2.5 percent next year, it said, cutting its 2016 outlook from a previous 2.6 percent. It sees 2.4 percent growth in 2017.

"Rate normalization should therefore proceed cautiously, while remaining mindful of the risks of waiting too long," the OECD said. It added that it assumed the Fed would lift rates in December and then increase them gradually.

The OECD, which had called for a September "lift-off" only to see the U.S. central bank hold rates steady, said the delay had caused large cross-border capital flows and volatility, making life difficult for emerging market policymakers.

And although the United States has seen robust growth and falling unemployment, workers' pay has yet to pick up there.

"Without wage growth, the recovery will lose steam, and prospects for the US to support the rebound in global trade and growth will come into question," Mann said.

The OECD also trimmed its forecast for the euro zone to 1.5 percent this year and 1.8 percent next year, from 1.6 percent and 1.9 percent previously. It trimmed its 2016 forecast for Germany and France but raised Italy's.

For China, the OECD raised its 2015 forecast to 6.8 from 6.7 percent and kept its 2016 forecast at 6.5 percent. It expects Chinese growth to slow to 6.2 percent in 2017.

Reuters

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