Mon | Dec 18, 2017

World economy growing faster than previous years, but not for long

Published:Wednesday | November 29, 2017 | 12:00 AM

The world economy is growing faster than it has in seven years and more and more people are working but the high growth isn't expected to last long, and wages remain stubbornly stagnant.

That's according to forecasts Tuesday from the Organisation for Economic Cooperation and Development, which urged governments to do more to ensure longer-term growth and better living standards across the board.

The group, which recommends policies for leading economies, predicts sustained growth in the US this year and next and a sharper-than-expected increase in the countries that use the euro currency.

For 2019, however, the OECD forecasts "a tempering of growth rather than continued strengthening".

Chief Economist Catherine Mann urged faster retraining of workers amid drastic technological changes, extending retirement ages, investing in renewable energy and simplified tax rules to reduce risks of a new downturn.

"We've got wind under the wings but we're flying low," she said at the OECD headquarters in Paris.

The agency slightly raised its global growth forecast to 3.6 per cent this year the highest since the post-crisis upturn in 2010 thanks to rising industrial production, trade and technology spending.

But that "remains modest by past standards", the OECD said.

Globally, it forecasts 3.7 per cent growth next year with a slight drop to 3.6 per cent in 2019.

In the United States, the OECD inched up its outlook, predicting 2.2 per cent growth this year and 2.5 per cent in 2018 thanks to "buoyant asset prices and strong business and consumer confidence". It expects US growth to fall back to 2.1 per cent in 2019.

 

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The OECD cautioned that its forecasts are clouded by uncertainty over President Donald Trump's tax policies and risks of protectionist trade moves. Trump campaigned to protect manufacturing jobs in the United States and renegotiate international trade deals he sees as unfair.

The long-troubled eurozone enjoyed another boost as the OECD became the latest group to raise its forecasts for the 19-country region. Tuesday's report foresees 2.4 per cent growth this year and 2.1 per cent for next year, but predicted growth will sink back below 2 per cent in 2019.

The main trouble spot is Britain, whose economy will continue to be hobbled by uncertainty surrounding its exit from the European Union. Economic growth "will continue to weaken" and be just above 1 per cent in 2018 and 2019, it said.

Another big concern of the OECD: employment is rising across most rich economies, but people's wages aren't.

"It's against intuition, it's against basic principles of economics, and normally it should have been otherwise," OECD chief Angel Gurria said. "Clearly, growth has to be made more inclusive.

"The ongoing digital revolution should be unlocking efficiencies and allowing workers to produce more," he said. But "nobody will be able to produce more if they don't have the skills to get the most out of the machine."

The report also warned of the risks of high corporate debt in China and spiking housing prices in some US cities and rising household debt.

- AP