Paris: The OECD cut its world economic growth forecasts for 2015 and 2016 on Wednesday, warning of a dramatic slowdown in Brazil and a global outlook clouded by uncertainty over China.
The policy analysis club of 34 advanced economies had already slashed its forecasts just three months ago because of weak US activity.
Now the Organisation for Economic Cooperation and Development is returning to its calculations with an axe, citing in part a crisis gripping emerging markets as China’s economic boom, and its voracious appetite for raw materials, slows.
The OECD cut its world growth forecast for this year to 3.0 per cent, trimming 0.1 percentage points off its previous estimate made in June.
“Global growth prospects have weakened slightly and become less clear in recent months,” the OECD said, despite a recovery in advanced economies.
“The outlook has worsened further for many emerging market economies.”
The group issued its new economic outlook on the eve of a US Federal Reserve decision on whether to lift interest rates for the first time in nine years. Analysts say such a tightening could chill global activity.
For China, whose slowing economy has prompted deep uncertainty in global financial markets, the OECD cut its 2015 growth forecast by 0.1 percentage points to 6.7 per cent.
But Brazil’s forecasts took the biggest hit, by far, in the latest OECD report.
Suffering like other emerging economies from a commodity price crash, engulfed in recession and with its debt downgraded by Standard & Poor’s this month to junk bond status, Brazil had its economic outlook for this year downgraded to a 2.8-per cent contraction instead of a 0.8-per cent contraction.
For 2016, the OECD lowered the global growth outlook to 3.6 per cent, a reduction of 0.2 percentage points from three months ago.
“Some strengthening in growth is expected in 2016 but doubts about future potential growth continue to build,” it said.
While the US recovery was now solid, the OECD said the picture worldwide was muddied by “puzzles” in other big economies.
“Erratic” data in Japan raised questions over its recovery, the group said.
Coincidentally, within an hour of the report’s release, Standard & Poor’s cut Japan’s investment-grade credit rating by one notch, saying the government’s strategy to revive growth and end deflation was unlikely to reverse the deterioration in the next two to three years.
Meanwhile, the euro area’s recovery lacked some vigour and activity in China was “difficult to assess”, the OECD said.
Emerging markets risked being hurt by rising world interest rates or a sharper than expected slowdown in China, sparking financial and economic turbulence that could be a “significant drag” on advanced economies, it said.
US rate rise ‘warranted’
China faces a challenge trying to sustain growth while changing its economy from an investment-powered model towards one led by consumers, the OECD said.
It urged China to focus on social spending to support consumers, rather than debt-financed infrastructure investment.
The group supported a rise in US interest rates but said the pace will be critical.
“In the United States, progress on closing output and employment gaps warrants an upward interest rate path, but at a very gradual pace,” the OECD said.
“The timing of the first rate hike is of secondary importance compared to the pace of increase. Clear communication of that pace will help to minimise financial market volatility.”
The latest report means the OECD has cut its 2015 global growth outlook by a full percentage point from March, when it foresaw a worldwide economic expansion of 4.0 per cent.