OECD Expects Emerging Markets Slowdown to Reduce Global Growth

The Organisation for Economic Cooperation and Development (OECD), which in May predicted global economic growth of 3.1% this year and 4% in 2014, has shaved its forecasts to 2.7% and 3.6% respectively.

In its latest semi-annual report, the Paris-based organization cited slowing growth in major emerging market economies such as Brazil and India as a major reason for the downgrades. It also cited US political brinkmanship over the country’s debt ceiling and concerns over timing and extent of the Federal Reserve’s anticipated tapering.

“In recent months, three events have already unsettled confidence and market stability,” said Pier Carlo Padoan, chief economist at the OECD. “First, the reaction to discussion in early summer regarding the tapering of asset purchases by the Fed was surprisingly strong. Second, increased concerns about developments in some emerging market economies [EMEs] added to market tensions and sharp capital outflows. Third, the United States came close to a potentially catastrophic crisis associated with its legislative ceiling on federal government debt.”

The OECD now expects the eurozone to expand by 1% in 2014; down slightly from its May estimate of 1.1%. However, whereas six months ago it expected the region to show a -0.6% contraction this year it now forecasts a lesser figure of -0.4%.

The organisation was notably more bullish than previously on prospects for the UK, where it now expects growth of 1.4% this year against its previous 0.8% estimate, rising to 2.4% in 2014. Its forecast for the US was little changed at 1.7% for 2013 and 2.9% in 2014.

The OECD sees India’s economy expanding 3.4% this year and 5.1% in 2014, down from 5.7% and 6.6% previously. It cut its forecast for Brazil to 2.5% and 2.2% respectively, from earlier forecasts of 2.9% and 3.5%.

It also offered the first projections for 2015, when it expects the world economy to expand 3.9%, with the US growing 3.4%, China by 7.5%, the eurozone by 1.6% and Japan by 1%.

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