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 There will be marked divergences among countries both in terms of
growth and monetary policy, leading to volatility in debt and
foreign exchange markets, the Organisation for Economic Co-operation
and Development said.
The United States and Britain will grow more strongly then the euro
zone and Japan and, among emerging countries, India, Indonesia and
South Africa are set to recover steadily. Russia's economy is set to
stagnate next year and China's will soften, the think-tank said in
its bi-annual economic outlook.
Overall, the global economy is set to grow by 3.3 percent this year,
3.7 percent in 2015 and 3.9 percent in 2016, the OECD said,
confirming forecasts published before the G20's summit earlier this
month.
While most estimates remained unchanged, Japan's forecast was more
than halved for 2014 and cut to 0.8 percent for next year after it
unexpectedly fell into recession in the third quarter. But the OECD
still expects Japan to recover as corporate profits remain high and
a weak yen will help exports.
A bigger worry for the Paris-based think-tank is the euro area,
which it said "may have fallen into a persistent stagnation trap".
"The euro area is at risk of deflation if growth stagnates or if
inflation expectations fall further," it said.
Its inflation forecasts of 0.6 percent for the euro area next year
and 1.0 percent for 2016 are slightly more pessimistic than the EU's
own forecasts and far from the European Central Bank's target of
just below 2 percent.
MONETARY STIMULUS
The OECD therefore reiterated its call for the ECB to embark on
quantitative easing in the euro zone.
"Further monetary stimulus could involve more purchases of
asset-backed securities and covered bonds, and also purchases of
government bonds, possibly via a weighted basket of euro area
countries, and investment-grade corporate bonds," it said.
The OECD said that below-target budget plans put forward by France
and Italy, which are expecting the EU's verdict on their policies by
the end of the week, are "appropriate" to help boost growth.
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In the United States growth is projected to gain more momentum and
remain above trend, the OECD said, reaching 3.1 percent next year.
Britain's economic growth looks set to slow slightly to 2.7 percent
next year, the OECD said – above the long-run average but just below
the 2.9 percent forecast by the Bank of England earlier this month.
Continued weak productivity remained a major risk.
The BoE should start to raise interest rates in the middle of 2015
to stop inflation picking up too much, the OECD added, a few months
earlier than implied by the BoE's recent economic outlook.
Growth in China is projected to soften a bit, the OECD said.
"Stimulus measures taken this year continue to support output
growth, but property market activity remains weak," it added.
The think-tank has calculated that a gradual 10 percent depreciation
of the euro and the yen against the dollar over the next two years
could potentially raise growth in the euro area and Japan by around
0.2 percentage point next year and twice as much the following year.
While geopolitical tensions over Ukraine and the Middle East have
grown, this has had little impact on commodities markets so far but
the risk remains, the OECD said.
(Additional reporting by Stanley White in Tokyo, David Milliken in
London, Sarah White in Madrid, George Georgiopoulos in Athens;
Editing by Alexandria Sage/Ruth Pitchford)
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