Wednesday 21 February 2018

OECD: European recovery following US growth

ECB President Mario Draghi
ECB President Mario Draghi

The outlook is gradually improving for advanced economies while even crisis-weary Europe is at last joining the recovery following US growth, the OECD said on Tuesday.

Nonetheless, a slowdown in many emerging economies meant that global growth would remain sluggish, the Organisation for Economic Cooperation and Development said.

"The bottom line is that advanced economies are growing more and emerging economies are growing less," OECD chief economist Pier Carlo Padoan told Reuters.

Among major economies, the United States would lead the recovery with growth this year of 1.7pc, the think tank said, trimming its estimate from a May forecast of 1.9pc.

Boosted by massive monetary stimulus from the central bank, Japan was seen on course for growth this year of 1.6pc, unchanged from the OECD's May forecast.

Meanwhile Europe, which has been a drag on growth in recent years as it struggled with its debt crisis, at last offered good news with recoveries underway in France and Germany prompting the OECD to raise its forecasts for them.

France was seen on course for growth of 0.3pc this year, up from a contraction of 0.3pc in the OECD's May forecast, while Germany, Europe's biggest economy, was set to grow 0.7pc, up from 0.4pc previously.

Outside the eurozone, Britain was seen growing 1.5p, raised sharply from a forecast of 0.8pc in May.

Though major developed economies are picking up, a slowdown in many emerging countries was likely to weigh on broader global growth, the OECD said.

China was the exception among emerging economies, with its growth forecast to accelerate over the course of the year and achieve a rate of 7.4pc this year.

With the U.S. economy on track to keep growing at steady clip, the OECD said it was appropriate for the Federal Reserve to start slowing bond purchases, the main measure in the central bank's exceptionally monetary easing policies.

The Fed signalled in May that it was contemplating slowing the pace of the purchases, which have been the flagship measure for reviving the world's biggest economy since the 2008-2009 financial crisis.

In the euro area, the OECD said the ECB should keep the possibility of an interest rate cut on the table in case the recovery there peters out.

ECB boss Mario Draghi will give the bank's decision on interest rates this Thursday.

With Italy's economy forecast to contract 1.8pc this year, Padoan said that the debt-laden economies of southern Europe still needed loose monetary policies there.



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