Low oil prices and monetary easing are boosting growth in the world’s major economies, but the near-term pace of expansion remains modest, with abnormally low inflation and interest rates pointing to risks of financial instability, according to the OECD’s latest Interim Economic Assessment.
Strong domestic demand is driving growth in the United States, which, combined with dollar appreciation, is adding to demand in the rest of the world. The euro area should benefit from low oil prices, monetary stimulus and euro depreciation, which combine to offer the chance to escape from stagnation.
In Japan, monetary and fiscal stimulus provide the impetus for faster near-term growth, but longer-term challenges remain. A gradual slowdown in China, towards the new official growth target, is expected to continue. India is expected to be the fastest-growing major economy over the coming two years, while the outlook is likely to worsen for many commodity-exporting nations, with Brazil falling into recession.
“Lower oil prices and widespread monetary easing have brought the world economy to a turning point, with the potential for the acceleration of growth that has been needed in many countries,” said OECD Chief Economist Catherine L. Mann. “There is no room for complacency, however, as excessive reliance on monetary policy alone is building-up financial risks, while not yet reviving business investment. A more balanced policy approach is needed, making full use of fiscal and structural reforms, as well as monetary policy, to ensure sustainable growth and public finances over the longer term.”
The OECD projects that the US will grow by 3.1 percent this year and by 3 percent in 2016, while the UK is projected to grow at 2.6 percent in 2015 and 2.5 per cent in 2016. Canadian growth is projected at 2.2 percent this year and 2.1 percent in 2016, while Japan is projected to grow by 1 percent in 2015 and 1.4 percent in 2016.
The euro area is projected to grow at a 1.4 percent rate in 2015 and a 2 percent pace in 2016. Growth prospects differ widely among the major euro area economies. Germany is forecast to grow by 1.7 percent in 2015 and 2.2 percent in 2016, France by 1.1 percent in 2015 and 1.7 percent in 2016, while Italy will see a 0.6 percent growth rate in 2015 and 1.3 percent in 2016.
China is expected to grow by about 7 percent annually in both 2015 and 2016. India will grow by 7.7 percent in 2015 and 8 percent in 2016. Brazil’s economy is expected to shrink by 0.5 percent in 2015 before returning to a 1.2 percent growth rate in 2016.
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Read more about deflation in the OECD Observer: http://www.oecdobserver.org/news/fullstory.php/aid/4807/