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| OECD: outlook for global economy is 'better, but not good enough' | OECD: outlook for global economy is 'better, but not good enough' |
| (about 3 hours later) | |
| The west’s leading economic thinktank has predicted a tentative recovery for the global economy this year and next but warned of risks from fragile trust in government, weak wage growth and persistent inequality. | The west’s leading economic thinktank has predicted a tentative recovery for the global economy this year and next but warned of risks from fragile trust in government, weak wage growth and persistent inequality. |
| In its latest health check on growth prospects, the Organisation for Economic Cooperation and Development described the outlook for the global economy almost a decade on from the financial crash as “better, but not good enough”. | In its latest health check on growth prospects, the Organisation for Economic Cooperation and Development described the outlook for the global economy almost a decade on from the financial crash as “better, but not good enough”. |
| The Paris-based organisation nudged up its forecasts for global growth this year. But it trimmed its outlook for the US, to show growth accelerating more gently than in its previous assessment in March. | |
| It made no changes to predictions that the UK will suffer a Brexit-related slowdown, with growth easing from 1.8% in 2016 to 1.6% this year and just 1% in 2018. | It made no changes to predictions that the UK will suffer a Brexit-related slowdown, with growth easing from 1.8% in 2016 to 1.6% this year and just 1% in 2018. |
| Its outlook for the UK highlighted the dramatic squeeze on wages that lies ahead, especially next year when 2.7% inflation will dwarf average wage rises of just 1.5%. | |
| The decline in real wages will put the UK at the bottom of the league of OECD countries for wages growth with Finland. | |
| The TUC general secretary, Frances O’Grady, said it was alarming that UK workers would face the biggest real wage fall of any advanced economy in 2018, while other OECD members, with the exception of Italy and Mexico, would experience real wage increases in 2018. | |
| She said: “Boosting wages has to be a top priority for whoever gets the keys to Downing Street. British workers still haven’t recovered from the last financial crisis. The last thing they can afford is another hit on their finances.” | |
| Labour’s John McDonnell said the OECD outlook was “a hammer blow for the Tories’ economic credibility”. | |
| He said: “The OECD’s calls for increased investment in our economy is a ringing endorsement of Labour’s economic policy in this election, and shows the clear choice voters have on Thursday.” | |
| Referring to the UK’s decline in GDP growth in the past six months, Catherine Mann, the OECD’s chief economist, said recent data had been poor and the benefit of the lower pound for exporters was offset by inflationary pressures from higher import prices hitting disposable incomes. | |
| “We are concerned about the purchasing power for consumers in an environment where the pass through [from higher import prices] seems pretty robust,” she said. | |
| Mann added that the US growth rate was downgraded after delays to the Trump administration’s reform package, which includes large-scale infrastructure spending. | |
| After 3% growth in 2016, the global economy is expected to expand by 3.5% this year and 3.6% in 2018. That compares with previous forecasts for 3.3% and 3.6% respectively. | |
| “After many years of weak recovery, with global growth in 2016 at the lowest rate since 2009, some signs of improvement have begun to appear,” Mann wrote in the OECD’s latest outlook report. | |
| “Trade and manufacturing output growth have picked up from a very low level, helped by firmer domestic demand growth in Asia and Europe, and private sector confidence has strengthened. But policy uncertainty remains high, trust in government has diminished, wage growth is still weak, inequality persists, and imbalances and vulnerabilities remain in financial markets.” | “Trade and manufacturing output growth have picked up from a very low level, helped by firmer domestic demand growth in Asia and Europe, and private sector confidence has strengthened. But policy uncertainty remains high, trust in government has diminished, wage growth is still weak, inequality persists, and imbalances and vulnerabilities remain in financial markets.” |
| Mann warned that despite a more buoyant mood in the global economy, policymakers could not afford to be complacent. The recovery was not strong enough to sustainably improve people’s wellbeing or to reduce persistent inequalities, she said. | |
| The OECD devoted a significant proportion of its report to the possible forces behind a backlash against globalisation. That discontent was seen as a key factor behind Donald Trump’s election victory, with his pledge to put “America first”. Anti-globalisation sentiment also appears to have bolstered protectionist politicians in other countries, including France where the far-right candidate Marine Le Pen made it to the final round of the presidential election but lost to the centrist Emmanuel Macron. | |
| The OECD said international trade had been a “powerful engine of global economic growth and convergence in living standards between countries”, but despite those gains the backlash against it had been rising. | |
| It cited multiple reasons for popular dissatisfaction, including the rise in inequality in many countries since the early 2000s that meant many households had had little or no gain in disposable income. The decline of middle-skilled jobs was another factor, as was the drop in manufacturing employment that had continued in almost all of the 35 OECD countries. | It cited multiple reasons for popular dissatisfaction, including the rise in inequality in many countries since the early 2000s that meant many households had had little or no gain in disposable income. The decline of middle-skilled jobs was another factor, as was the drop in manufacturing employment that had continued in almost all of the 35 OECD countries. |
| The report also highlighted that while employment growth had recovered relatively well in recent years, in some ways the quality of work was more precarious. | The report also highlighted that while employment growth had recovered relatively well in recent years, in some ways the quality of work was more precarious. |
| Its outlook for the US noted that risks remained “sizeable”. Primary among those was uncertainty around the size and timing of any boost from tax and spending policy. There was also a risk that the labour market could tighten more quickly than projected, stoking wage pressures and meaning the US Federal Reserve increases interest rates more rapidly than expected. | Its outlook for the US noted that risks remained “sizeable”. Primary among those was uncertainty around the size and timing of any boost from tax and spending policy. There was also a risk that the labour market could tighten more quickly than projected, stoking wage pressures and meaning the US Federal Reserve increases interest rates more rapidly than expected. |
| The US economy is predicted to grow by 2.1% this year and 2.4% in 2018, down from March’s forecasts for 2.4% and 2.8% respectively. | |
| The eurozone forecasts were nudged up to 1.8% growth this year and next, from 1.6% for both years predicted in March. | The eurozone forecasts were nudged up to 1.8% growth this year and next, from 1.6% for both years predicted in March. |
| The OECD highlighted risks stemming from financial markets, where share prices in the US, UK and elsewhere have hit record highs, seemingly out of sync with prospects for the real economy. | |
| There were further warnings about high house prices in some countries and about the consequences of years or record low interest rates after the global financial crisis. That “over-reliance” on very loose monetary policy had led to vulnerabilities associated with rising debt levels, elevated asset prices and investors searching for ways to get a yield on their investments. | |
| The OECD noted that the UK, Canada, Sweden, Australia and other countries had experienced rapid house price growth. “As past experience has shown, rapid house price gains can be a precursor of an economic downturn, especially when they occur simultaneously in a large number of economies,” it said. | |
| After June’s EU referendum result, the OECD was, like many forecasters, forced to backtrack on its warning that the UK would suffer instant damage from the Brexit vote. Its latest outlook noted there was support for UK growth from low interest rates and from planned spending cuts being pushed back. | |
| But echoing recent signs that consumers had become more cautious, the group said the pound’s sharp drop since the Brexit vote had pushed up inflation, denting household income growth and household spending. It also warned business investment would decline sharply, amid continuing uncertainty about the future relationship between the UK and the EU and lower corporate profit margins. | |