Governments must boost
spending to escape 'low-growth trap': OECD
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[June 01, 2016]
By Leigh Thomas
PARIS (Reuters) - Ensnared in a "low-growth
trap", the world economy will meander along at its slowest pace since
the financial crisis for a second year in a row in 2016, the OECD
forecast on Wednesday, urging governments to boost spending.
With businesses wary of investing and consumers cautious about spending,
the global economy will grow only 3.0 percent this year, the
Organisation for Economic Cooperation and Development estimated.
That would be no better than last year, which was already the worst
since 2009, although growth would pick up modestly to 3.3 percent next
year, the OECD forecast in its biannual Economic Outlook.
Growth at those levels deprives youths of job opportunities and means
old people will not get the healthcare and pension benefits they expect,
OECD Chief Economist Catherine Mann told Reuters.
"We are breaking promises to young people and old people. Therefore
policymakers have to act to break us out of the low growth trap," Mann
said in an interview.
With OECD countries growing on average at half their estimated
potential, it would take 70 years to double living standards, twice the
rate of two decades ago.
Mann warned against counting on central banks alone to lead the return
to higher growth rates, with the benefit-to-risk balance of their
exceptionally loose monetary policies tipping to the latter.
Therefore, governments should not hesitate to plough money into
growth-boosting initiatives like education and infrastructure, financing
higher spending thanks to rock-bottom interest rates in many countries.
"The low interest rate environment created by the central banks opens up
fiscal space to governments and we are saying that you should use it,"
For a table of the OECD updated forecasts:
Though the OECD did not lower its global growth forecast from the last
time it updated its estimates in February, it said the U.S. outlook had
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Shoppers are reflected in a shop window as they walk along Oxford
Street on the last Saturday before Christmas, in London, Britain,
December 21, 2013. REUTERS/Luke MacGregor/File Photo
It cut U.S. growth for this year to 1.8 percent from its previous forecast of
2.0 percent with weak foreign demand and a dearth of investment in the oil and
mining sector weighing.
The OECD reiterated a warning that Britain would suffer a sharp slowdown in
growth if voters opted in a referendum this month to leave the European Union.
In light of the political uncertainty surrounding the vote, OECD cut its
forecast for 2016 British growth to 1.7 percent from 2.1 percent previously,
assuming voters opted to stay in the EU.
But a vote to leave could shear half a percentage point off British growth
annually in the following years, the OECD estimated.
Brexit aside, the outlook for the euro area had improved, with the OECD raising
its growth estimate to 1.6 percent this year from 1.4 percent in February on an
improved outlook for the French and German economies.
(Reporting by Leigh Thomas; editing by Richard Lough/Jermey GauntEZ)
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