OECD cuts growth forecasts for major economies

PARIS — The Organization for Economic Cooperation and Development (OECD) slashed its growth forecasts for major developed economies yesterday, urging much more aggressive European Central Bank (ECB) stimulus to ward off the risk of deflation in a subdued eurozone.

The call adds to growing pressure on the zone and the ECB, in particular, to boost growth ahead of a meeting of finance ministers and central bankers from the Group of 20 economic powers later this week in Australia.

Updating its growth forecasts for major developed economies, the OECD projected growth in the eurozone at only 0.8 per cent this year and rising slightly next year to 1.1 per cent.

That marked a sizable downgrade from its May economic outlook for the eurozone, when the Paris-based organisation forecast growth of 1.2 per cent this year and 1.7 per cent in 2015.

“The bullishness of financial markets appears at odds with the intensification of several significant risks,” said the OECD.

“Continued slow growth in the euro area is the most worrying feature of the projections.”

The OECD said although eurozone inflation, at a five-year low of 0.4 per cent last month, should strengthen as demand recovers, low levels close to zero raised the risk of deflation.

“Given the low-growth outlook and the risk that demand could be further sapped if inflation remains near zero or even turns negative, the OECD recommends more monetary support for the euro area,” said the organisation in a statement.

In comparison, the OECD predicted that the United States economy would grow 2.1 per cent this year before accelerating to 3.1 per cent in 2015.

In May, the OECD forecast US growth of 2.6 per cent this year and 3.5 per cent next year.

Turning to Japan, it forecast growth of 0.9 per cent this year and 1.1 per cent in 2015, as the economy recovers after a sales tax hike in April muted consumer demand in the first half. The OECD trimmed its estimates from May for growth of 1.2 per cent this year and 1.3 per cent in 2015.

Outside OECD member countries, the group saw growth roughly stable in China at 7.4 per cent this year and 7.3 per cent in 2015 — both unchanged from its estimates in May.

India — the only major economy to have its growth forecast raised this year — will expand 5.7 per cent in 2014 and 5.9 per cent next year, said the OECD. “In the US, the moderate underlying expansion remains broadly on track,” it added.

“China has managed to achieve an orderly growth slowdown (and), in India, confidence and spending have improved markedly during 2014, as a result of progress to control inflation and the perception that the new government will reinvigorate growth-oriented reform.” Agencies