OECD Sees a Lot to Worry About in the Global Economic Outlook

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OECD Sees a Lot to Worry About in the Global Economic Outlook

Britain's economy will grow by 1.6% this year, the Organisation for Economic Co-operation and Development (OECD) said as it revised up its forecast amid resilient consumer spending and action by the Bank of England and Government following the Brexit vote.

In November, faced with the acceleration of the United Kingdom economy on the back of continued strength in consumer spending, the OECD changed its prediction to 1.2 per cent.

Publication of the OECD's March global Interim Economic Outlook, entitled Will risks derail the modest recovery? comes as the CME Group FedWatch tool calculates that there's an 84% probability that the Federal Reserve will increase its interest rate target by a quarter of a percentage point to the 0.75%-1.00% range this month and a 40% probability of another quarter-point rise by June.

Due to rising inflation weighs on real income and consumption and business investment weakens amid uncertainty about Britain's future trading relations with its partners, growth in Britain would slow from 1.6 percent this year to 1 percent in 2018.

"Financial market expectations imply that a large divergence in short-term interest rates between the major advanced economies will open up in the coming years". However, it trimmed 2018 estimates modestly amid concern for rapid house price increases and exchange rate volatility. Canada, Australia, Sweden and the United Kingdom, in particular, have experienced a rapid rise in house prices, the OECD said.

Global GDP is forecast to rise to 3.5% in 2018 from 3% in 2016, the OECD, an intergovernmental organization based in Paris, said in its report on Tuesday.

Unchanged from last estimates, the expected global modest recovery would be the result of continuing and expected combined fiscal and structural initiatives in the major economies, notably China, Canada that would help to boost global demand, according to the OECD. The outlook for the fiscal year 2018 was retained at 7.7 percent.

For 2017, the growth forecast for the single-currency block is unchanged at 1.6 percent and slightly down in 2018.

In February the Bank upgraded its central 2017 growth forecast to 2 per cent, on the back of stronger growth in the final quarter of 2016. The OECD is also anxious financial markets are overestimating the current health of developed economies. "The positive assessment reflected in market valuations appears disconnected from real economy prospects". "The pace will remain too slow to address some of the fundamental issues facing the global economy, particularly with regard to productivity growth and inclusiveness".

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