Unemployment will drop to its lowest level since 1980 across the world’s richest nations, but global growth remains dependent on cheap borrowing and government spending, the Organisation for Economic Cooperation & Development (OECD) has warned in its latest global economy health check.
The rise of tit-for-tat protectionist trade barriers, the return of volatile financial markets, and soaring oil prices also spell trouble for the global economy as it heads towards the 10-year anniversary of the 2008 banking collapse, the OECD said.
“The economic expansion is set to continue for the coming two years, and the short-term growth outlook is more favourable than it has been for many years,” said Angel Gurría, secretary general of the OECD, the Paris based thinktank for the world’s 35 richest nations, including the US, Britain, Mexico and Japan.
“However, the current recovery is still being supported by very accommodative monetary policy, and increasingly by fiscal easing. This suggests that strong, self-sustaining growth has not yet been attained.”
Central banks in Britain, the eurozone, Japan and the US have kept interest rates low and pumped funds into their economies via quantitative easing to maintain investment and promote growth. Governments have eased back on austerity measures, allowing more state funds for infrastructure projects and welfare payments, especially pensions.
Last year, Gurría clashed with the UK chancellor, Philip Hammond, when he suggested that a second referendum on EU membership would significantly benefit the economy.
Like most international agencies, the OECD has warned that leaving the EU will harm foreign investment into the UK and lower potential growth.
The latest economic outlook for the UK says the economy is in better shape than the OECD expected last September when it predicted that Britain would only manage to grow by 1%. It says the economy will grow by 1.4%, up from its previous estimate of 1%, and 1.3% next year.
Despite the slightly stronger prospects for growth, the unemployment rate would edge up gradually. The main risk to the forecast remained the uncertainty surrounding Brexit.
“If high uncertainty persists, the drag on capital expenditure could intensify as businesses delay plans further,” the report said.
“By contrast, deferred plans may be brought forward if businesses gain clarity about future trading arrangements, pushing up investment growth in the short run.
“In addition, prospects of maintaining the closest possible economic relationship with the European Union would lead to stronger-than-expected economic growth,” it added.
The outlook calls for governments to reignite economic reforms while low interest rates and strong global growth persist. Countries should improve tax and spending policies to boost investment and raise living standards across the income distribution.
Governments should also boost spending on digital and physical infrastructure, enhance research and development collaboration between universities and industry, reduce barriers to entry in professional services sectors and cut red tape.
“Policymakers need to put greater focus on structural policies to boost skills and to improve productivity to achieve strong, sustainable and inclusive growth,” Gurría said.
- This article was amended 1 June 2018 to remove an erroneous reference to Russia and Brazil as OECD member countries.
