OECD paints gloomy picture of 2016 | Business| Economy and finance news from a German perspective | DW | 18.02.2016
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OECD paints gloomy picture of 2016

Optimists holding out hope of a global economic turnaround this year have received a wake-up call. Weak trade and low commodity prices have prompted the OECD to warn global growth prospects have 'practically flat-lined.'

The Organization for Economic Co-Operation (OECD) on Thursday painted a gloomy picture of this year's economic outlook.

With the exception of China, all of the world's top-five economies were downgraded. The US and Germany - the world's number one and four - suffered the biggest cuts among major developed economies, with the OECD shaving half a percentage point off its 2016 interim outlook for both countries to 2.0 percent and 1.3 percent respectively.

The Paris-based think tank said it now expects US and eurozone growth this year would be no higher than in 2015, which already marked a five-year low point, and that it predicted the economies would only begin to pick up marginally in 2017.

Despite the considerable slowdown in China's economy - the world's second-largest - the OECD left its prognosis for the Red Dragon of Asia unchanged for the next two years. However, it said it still expects growth to slow to 6.5 percent in 2016 and 6.2 percent in 2017.

Among the largest emerging economies, Brazil was seen as one of the biggest victims of falling commodity prices, with a recession expected to be deeper than feared at -4.0 percent this year.

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The organization said the combination of weak trade, decreasing international demand, slumping commodity prices, low inflation and sluggish wage growth, was acting like a wet blanket on the global economy, which it expected to continue to lose steam in the months ahead. Whereas, three months ago, it had pinned its growth estimates for 2016 at 3.3 percent, it said it now predicted no more than 3.0 percent.

"Global growth prospects have practically flat-lined, recent data have disappointed and indicators point to slower growth in major economies, despite the boost from low oil prices and low interest rates," said OECD Chief Economist Catherine Mann.

But while the 34-member body strongly urged world leaders to use all the tools in their toolbox to stimulate growth, it also stressed that "monetary policy cannot work alone."

"Financial instability risks are substantial...A stronger collective policy response is needed to strengthen demand," it added as it called on countries with room for fiscal expansion to raise public investment in infrastructure project.

Despite the bleak outlook, there was one rare bright spot: India's growth forecast was raised by 0.1 percentage points to 7.4 percent.

pad/hg (AFP, Reuters)