Wed | Aug 15, 2018

Disconnect between stock market and economy, OECD warns

Published:Wednesday | March 8, 2017 | 12:00 AM

There appears to be a disconnect between the recent surge in stock markets and the global economy's underlying strength, the Organisation for Economic Cooperation and Development warned Tuesday.

Many indexes, particularly in the United States, have rallied over the winter to hit record highs the Dow Jones industrial average is now above 20,950 points while the S&P is at 2,370.

The OECD noted, however, that expectations for company earnings in the US and Europe have not been revised up on the whole. And growth in consumption and investment is still lagging.

"In financial markets, there are apparent disconnects between the positive assessment of economic prospects reflected in market valuations and forecasts for the real economy," the Paris-based organisation said in its latest economic outlook.

The OECD predicts that global economic growth this year will be 3.3 per cent and rise to around 3.6 per cent in 2018.

However, it warned that the "projected modest upturn" could be derailed by a number of factors, including the possibility of a downturn in markets, greater barriers to trade set up by governments, and uncertainties about the path of interest rates around the world.

It said the global economy remains beset by subpar growth and high inequality following the financial crisis.

The organisation's secretary general, Angel Gurria, says governments "need to take actions that restore people's confidence while at the same time resisting turning inward or rolling back many of the advances that have been achieved through greater international cooperation".