In its recently released economic analysis for 2018, the OECD has revealed that it expects the global economy to grow by close to 3.8% in 2018 and 3.9% the following year.
As reported by The Financial Times, this forecast “stems from a recent rebound in investment that has helped cut unemployment across the OECD to its lowest level since 1980, igniting wage growth and leading to nascent labour shortages in Germany, Japan, the US and elsewhere.”
Furthermore, the OECD’s chief economist, Alvaro Pereira, said, “Contrary to previous periods, 4 per cent world growth is not due to rising productivity gains or sweeping structural changes. This time around the stronger economy is largely due to monetary and fiscal policy support.”
Additionally, the unemployment rate among OECD member countries will fall below 5 percent in 2019, its lowest level in almost forty years. Such low unemployment rates will be reflected in higher wages for employees across the globe.
OECD Warns About Potential Risks for 2018
The OECD also warned that the world economy might still face several risks throughout the remainder of the year.
Pereira singled out the United States, saying its expansionary fiscal policy has come “a bit late in the cycle” and, hence, might lead to a hike in inflation and a 180-degree turn at some point.
Furthermore, as explained by the Financial Times, the report suggests that the poor first quarter numbers were the result of strikes, a cold winter, postponed investments due to “fears of disruption to trade,” and high oil prices.
The report also warns that rising US interest rates and a stronger dollar could put added pressure on the developing world, while a looming political crisis and growing debt in Italy might hinder the Eurozone.
Last but not least, according to The Guardian’s Phillip Inman, the OECD believes that “the rise of tit-for-tat protectionist trade barriers [and] the return of volatile financial markets” will negatively impact the global economy’s performance moving forward.
The OECD’s Recommendations for Improved Economic Performance
The report also lays out a series of recommendations for governments to boost their countries’ economic performances.
As highlighted by The Guardian, the study “calls for governments to reignite economic reforms while low interest rates and strong global growth persist,” and recommends that jurisdictions “improve tax and spending policies to boost investment and raise living standards across the income distribution.”
Furthermore, states should ramp up “spending on digital and physical infrastructure, enhance research and development collaboration between universities and industry, reduce barriers to entry in professional services sectors and cut red tape.
According to the OECD’s Secretary General José Angel Gurría, “Policymakers need to put greater focus on structural policies to boost skills and to improve productivity to achieve strong, sustainable and inclusive growth.”
The chair of the OECD's Business and Industry Advisory Committee (BIAC), Phil O’Reilly agreed, telling CNBC in an interview that the best way to move economies forward is via “structural reforms and policies aimed at boosting skills, increasing workforce productivity and investing in innovation.”
More specifically, O’Reilly said, “Fiscal stimulus is only good for a little while… The idea of high debt is obviously an economic destabilizer. The answer is solid economic growth that goes beyond stimulus-driven growth and that's based on the fundamentals.”
O’Reilly then urged governments to focus on “skills advancement, digital inclusion and investment procedures.”
As reported by Natasha Turak for CNBC, O’Reilly called for greater “digital infrastructure and digital inclusion,” which “will be core to providing those in rural and underprivileged areas access to better tools for education, financial literacy, and business opportunities.”
Finally, “improved and simplified investment procedures, on both federal and local levels, will boost cross-border commercial flows and strengthen private sector job creation,” according to O’Reilly.
What are your thoughts on where the global economy is headed? Any forecasts of your own?
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