Conflicts and uncertainty lead OECD to lower global economic growth forecast

Economic growth forecasts for the US and other large developed economies has been cut by the Organisation for Economic Cooperation and Development (OECD), says the latest Global Monthly Economic Review from British Chambers of Commerce (BCC).

The OECD, which now expects the US to expand by 2.1 per cent in 2014 after predicting 2.6 per cent in May, warns that economic growth could prove to be disappointing due to risks including conflicts in the Ukraine and Middle East and weakness in the Eurozone.

Another factor, which could moderate growth, is sharp exchange rate movements in the US as investors prepare for a tightening of US monetary policy expected in 2015. US global growth is now forecasted at 3.5 per cent this year before picking up to almost four per cent in 2015.

The OECD says that it now expects the Eurozone economy to grow by just 0.8 per cent this year having forecast 1.2 per cent in May with the biggest change being for Italy, which it expects to contract by 0.4 per cent in 2014 after contracting for two consecutive quarters.

According to the BCC review “Italy risks sinking into a sustained period of outright deflation which could further depress demand. Deflation hit Italy for the first time in more than 50 years with prices across the economy falling by 0.2 per cent in August.”

Germany’s Q2 2014 economic contraction is also confirmed at 0.2 per cent after growing 0.7 per cent in Q1. Germany, where exports have been harmed as a result of soured relations with Russia, accounts for almost 30 per cent of the GDP of the entire 18-member Eurozone.

The review says: “In general the Eurozone’s economy has been struggling with the latest economies, like France and Italy, failing to post growth and mass unemployment in the south, namely Spain, Portugal and Greece.

The BCC review also says that China’s industrial sector has posted the weakest growth since the financial crisis started in 2008. The country’s factory production rose by 6.9 per cent annually in August, a level not seen since March 2009 and down from 9.0 per cent in July.

The review adds: “And with retail sales and investment figures also weaker than forecast, there are new fears that China’s economy is slowing faster than official figures show.

“China faces a difficult policy dilemma as the government is trying to rebalance the economy towards domestic consumption and sustaining a robust growth momentum requires policy measures which could heighten financial stability and public finance risks.”

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