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OECD warns of weak trade, financial distortions

Staff Writer |
Weaker conditions in advanced economies have offset a gradual improvement in emerging market commodity producers.

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The world economy entered a low-growth trap amid weak trade and financial distortions, the Organisation for Economic Co-operation and Development said Wednesday, while trimming the global growth projections.

"Overall, the world economy remains in a low-growth trap with persistent growth disappointments weighing on growth expectations and feeding back into weak trade, investment, productivity and wages," the Paris-based think tank said in its Interim Economic Outlook.

OECD reduced the global growth forecast for this year to 2.9 percent from 3 percent predicted in June and the projection for next year was trimmed to 3.2 percent from 3.3 percent.

The modest reduction in the global growth forecast mirrored the downgrades in major advanced economies, notably the United Kingdom for 2017, offset by a gradual improvement in major emerging-market commodity producers.

"Monetary policy has become overburdened and is creating distortions in financial markets," the OECD said. "Monetary policy has created a window of low interest rates. Fiscal policy should take advantage of the increase in fiscal space to increase growth enhancing spending."

The group also stressed on the need to intensify structural reform momentum. Poor growth outcomes combined with high inequality and stagnant incomes are further complicating the political environment, making it more difficult to pursue policies that would support growth and promote inclusiveness, the report said.

The U.S.' growth forecast for this year was lowered to 1.4 percent from 1.8 percent and the projection for next year was cut to 2.1 percent from 2.2 percent.

Despite solid consumption and job growth, U.S. growth slowed due to weak investment, partly reflecting developments in the energy sector, and a prolonged inventory correction, the OECD said. Demand growth is expected to improve next year, but remain below historical standards.

The growth projection for the U.K. for next year was halved to 1 percent, while the forecast for this year was boosted to 1.8 percent from 1.7 percent.

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