The OECD yesterday said that the world’s economy is trapped in a weak growth environment and vulnerable to falling into another deep downturn unless governments take urgent action. Soft demand has discouraged investment and lead to a downgrade in global growth rates.

The OECD chief economist Catherine Mann yesterday said ‘The longer the global economy remains in the low-growth trap, the more difficult it will be to break the negative feedback loops.’

On a positive note, the OECD increased its growth forecasts for the Eurozone based on a stronger than expected first quarter.

Global Growth – downgraded

The organization lowered its growth forecast for the combined economy of the 34 OECD countries to 1.8% this year and 2.1% in 2017 from 2.2% and 2.3% respectively in November.

US Growth – downgraded

The OECD now expects the U.S. economy to grow 1.8% this year and 2.2% in 2017, instead of 2% and 2.2% as it forecast in February and 2.5% and 2.4% in November.

Eurozone Growth – upgraded

The OECD increased its growth forecast for the eurozone this year to 1.6% from 1.3% in February after a stronger than expected first quarter. But it kept its 2017 eurozone forecast at 1.7%.

Japan Growth – downgraded

The OECD trimmed its Japan growth forecast to 0.7% this year and 0.4% in 2017 from 0.8% and 0.6% in February.

Brexit

The OECD singled out the possibility of the U.K. voting to leave the EU in the June 23 referendum as a “major downside risk” that could have substantial consequences for the country, the EU, and the rest of the world. If the U.K. voted to exit the EU, it would hurt economic growth and send shocks through global financial markets.

Threats to global growth

  • Global expansionary monetary policies is reaching a limit
  • Low interest or negative interest rates have even created distortions that threaten the global economy
  • Negative rates are weighing on bank profits
  • Low returns from savers could push them to compensate by saving more money instead of consuming

Solutions to increase growth forecasts

  • Governments need to do their part through expansionary fiscal policy and ramp up investment spending
  • Governments should take advantage of the interest rate environment to borrow over long periods to finance investment in areas like clean energy, infrastructure, telecommunications and transport