OECD Cuts 2016 Growth Forecast to 3.0 Percent

The OECD on Thursday cut its 2016 economic growth forecast to 3.0 percent from 3.3 percent owing to disappointing data, sluggish demand, weak investment and a high risk of financial instability.

"Financial instability risks are substantial," the 34-member Organisation for Economic Cooperation and Development said in its latest interim outlook, urging a strong collective response to combat sagging global growth, which it predicts will not surpass 2015's already pallid showing.

The Paris-based body trimmed its outlook for this year as growth slows in many emerging countries and advanced economies only expected to achieve modest recovery after a 2015 that saw the slowest growth in five years.

"Global growth prospects have practically flat-lined, recent data have disappointed and indicators point to slower growth in major economies, despite the boost from low oil prices and low interest rates," said OECD Chief Economist Catherine L. Mann at a news conference.

Mann urged "greater use of fiscal and pro-growth structural policies, to strengthen growth and reduce financial risks" after a forecast coming in well below a long-run average of around 3.75 percent, the OECD said, adding it would expect a higher figure during a "recovery phase" for advanced economies and for "emerging economies in convergence mode".

In its November outlook, the OECD had already downgraded its initial 2016 estimate, citing stagnating trade amid a slowdown in China.

But it said it felt compelled to do so again, while also revising downward an initial November projection for 2017 to 3.3 percent from 3.6 percent in an environment likely to impact most severely on the United States, the eurozone and economies reliant on commodity exports.

- Tackle collectively -"A stronger collective policy response is needed to strengthen demand," said the organisation a week before G-20 finance ministers and central bank governors meet in Shanghai, noting "contractionary" fiscal policy in many major economies amid slowing structural reform.

The downgrade reflects "a broad range of disappointing incoming data for the fourth quarter of 2015 and the weakness and volatility in global financial markets", trends "apparent in both advanced and emerging economies," said the OECD, identifying further risk as emerging market currency volatility and debt, notably in Russia, Turkey and Brazil.

It added poor growth prospects were pushing down equity prices, helping to spark recent market volatility.

"Structural reform momentum has slowed," said the OECD, identifying a combination of negatives affecting the global outlook, with fuel and commodity prices in a trough amid sluggish demand while China stays stuck in third gear.

"Monetary policy cannot work alone" to achieve sustained growth, warned the OECD.

The body, which repeatedly cut its 2015 outlook from an initial 3.7 percent, said that whereas relatively healthy growth in emerging countries had in previous years partially compensated for a slowdown in emerging nations, this was currently no longer the case.

"Global GDP growth is projected to be no higher than in 2015, itself the slowest pace in the past five years," it concluded, noting that "sluggish growth is reflected in weak trade and has contributed to recent falls in commodity prices."

One means of reviving growth would be to commit to greater public investment, the OECD said.

Although global trade flows are edging back from last year's stormy waters, they "remain subdued" with lower export demand for advanced economies flattening growth last year by around five percentage points.   

On a country by country basis, the OECD saw across-the-board weakness. It reduced the forecast for the United States by 0.5 percent to 2.0 percent. For sputtering EU locomotive Germany, it cut growth by 0.5 percent to 1.3 percent, compared to the German government's own forecast of 1.7 percent.

The cut for France was smaller at just 0.1 percent down to 1.2 percent -- the Paris government current forecast is 1.5 percent.

The forecast for China remained unchanged on the November assessment of 6.5 percent while India enjoyed a small upward revision of 0.1 percent to 7.4 percent.

But Brazil, in freefall after being hit severely by plunging commodity prices and falling Chinese-led demand, was downgraded by 2.8 percentage points to a 4.0 percent contraction.