World Economy Is Progressing, But Could Do Better

Lisa Smith, BA (Hons), CeFA
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Economists expect the global economy to plod along for the next couple of years – as long as politicians don’t upset the recovery.

The Organisation of Economic Co-operation and Development (OECD) confirms a veneer of recovery is hiding fragile financial markets and economies.

The club of 34 of the world’s leading developed nations fears poor policy decisions by governments could still tip the global economy back into recession and is urging them to carefully consider the consequences of change.

The warning comes in the latest OECD Economic Outlook report.

“The recovery is happening, but very slowly and no doubt there will be some upsets on the way,” said OECD Secretary-General Angel Gurría.

Washington brinksmanship

“More brinkmanship is likely in Washington when discussing the federal borrowing limits next year and tapering of asset purchase by the Federal Reserve could trigger volatility in the markets.

“Other danger zones include the single currency in Europe and Japan’s radical fiscal policy to stimulate growth.”

Looking at the GDP performance of OECD members, which include the US, UK, Japan and many European Union nations, average growth for 2013 is 1.2%.

The outlook forecasts increases to 2.3% next year and 2.7% in 2015.

In comparison, the global economy is growing at a rate of 2.7% this year and is predicted to speed up to 3.6% next year and 3.9% in 2015.

Two-speed economy

The comparison shows a clear two-speed world economy driven by faster growth in emerging nations like China, India and Brazil that are not members of the OECD.

Even within the OECD, the report expects a GDP growth divide as emerging nations Chile, Turkey, Mexico, Korea and Israel outpace more established economies.

Growth expectations for the major economies are mixed:

  • The US has a GDP growth rate of 2.9% in 2014 and 3.4% in 2015
  • Japan is forecast to drop to 1.5% in 2014 and 1% rate in 2015
  • The Eurozone will experience a gradual recovery, with growth of 1% in 2014 and 1.6% in 2015
  • China will keep growing but at a slower rate than in recent years – probably around 5%

“Our concern is recovery has a downside,” said Gurria. “The recovery is not strong and is accompanied by slowing world trade, decreasing foreign investment and rising jobless rates, especially in Europe where we expect the rate to stay at 12% or more for another two years.

“Central banks should also keep further easing of their economies as an option to keep the recovery going.”

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