The Organization for Economic Cooperation and Development (OECD) released a new report Tuesday that warned markets in the emerging countries could very well hurt global economic growth in the near-term. In addition, the Paris-based entity forecasted that the bad winter weather conditions in Canada and the United States and a potential sales tax increase in Japan could impair international and domestic economic recoveries.
Brazil, India, South Africa and Turkey are some of the emerging economies that have suffered from diminished momentum because of capital outflows rendered vulnerabilities. China signalled a slowdown because of exhausted balance sheets.
“The gradual recovery in the advanced economies is encouraging, even if temporary factors have pushed down growth rates in the early months of this year, while the slowdown in emerging economies is likely to be a drag on global growth,” OECD acting chief economist Rintaro Tamaki said in a statement.
“Given that emerging economies now account for over half the world economy, continued subpar economic performance for several of the major EMEs [emerging-market economies] is likely to mean that global growth remains only moderate in the near term.”
Also found in the report was the OECD urging the European Central Bank (ECB) and the Bank of Japan to further inject monetary stimulus. It noted that the Federal Reserve is correct in its planned tapering of its $85 billion bond-buying program, which has led to a balance sheet of more than $4 trillion for the central bank.
According to its forecasts, U.S. economic growth would likely slow down to 1.7 percent in the first quarter from 2.4 percent in the fourth quarter of last year because of the difficult weather conditions. “The ongoing fiscal contraction and low consumer and business confidence have been creating strong headwinds, but are assumed to diminish during 2014.”
North of the border in Canada, economic growth will strengthen throughout 2014 and next year, particularly in exports and business investment. “Projected growth should be enough to absorb the small degree of remaining excess capacity by end-2015, and the inflation rate should increase to near the two percent target rate.”
In Europe, the OECD sees Germany’s quarterly growth rate hitting 3.7 percent in the first quarter and then drop to 2.5 percent. France will only experience a 0.7 percent economic growth before reaching one percent in the second quarter. Great Britain, meanwhile, is expected to grow 3.3 percent in both the first and second quarters.
Growth in the Japanese economy would soar 4.8 percent but when a higher sales tax is implemented in April then it’s likely it will decline. In the meantime, consumers will buy more goods and services ahead of the hike.
“With remaining fragilities in the euro area, Japan only just beginning to confront its daunting fiscal challenges and the possibility of a slowdown in China, it is critical that advanced and emerging economies alike recognise the growing importance of structural reforms to reinvigorate growth and boost job creation,” Tamaki stated.
The report did not include the recent Russia-Ukraine conflict in its economic evaluation.
