OECD boss Angel Gurria said growth is being sustained by central banks
The influential Organisation for Economic Cooperation and Development (OECD) today upgraded its forecast for UK economic growth but warned that strong global growth is reliant on economic policy rather than sought-after productivity improvements.
The British economy will expand by 1.4 per cent this year before slowing to 1.3 per cent in 2019, according to forecasts published today by the Paris-based body representing most of the world’s richer nations. That represents a faster pace of growth than the one per cent predicted in September.
The OECD said that the performance, while better than previously thought, will “remain modest”, citing uncertainty from the Brexit negotiations.
“The authorities should stand ready to further increase productivity-enhancing measures on investment if growth weakens significantly ahead of Brexit,” the world economic outlook said, citing greater spending on education and training of low-skilled workers.
Global growth will remain strong at 3.8 per cent in 2018 before accelerating to 3.9 per cent in 2019, according to the updated forecasts.
Meanwhile, unemployment among OECD nations, which added Colombia as a member this week, is projected to fall to the lowest level since 1980. However, wages and prices are only expected to rise “moderately”, with the OECD blaming lower labour force participation and fewer hours worked, suggesting there may be hidden slack behind the headline figures suggesting a historically tight labour market.
“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 OECD secretary-general Angel Gurria.
“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.”
Rising interest rates in the US could cause wobbles on financial markets. The risks are found “especially in emerging market economies with high levels of foreign currency debt”, the OECD said. In recent weeks tightening interest rates in the US have put extreme pressure on emerging market currencies including Argentina and Turkey.
Alvaro Pereira, OECD interim chief economist, added in an article accompanying the forecasts that a trade war could “significantly” dent growth, while steep oil price rises will cause external funding imbalances in some nations and boost inflation in others.