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OECD cuts global growth forecast amid currency debt risks

Global growth

The OECD has reduced its global growth forecasts by 0.3 percentage points from its November 2015 predictions.

The organisation now predicts that global gross domestic product will rise three per cent in 2016 - the same rate as the previous year.

Published in a report on February 18th, the revised prediction came with warnings of growing risks to the global economy. It described the degree of risk as "substantial" and noted that "some emerging markets are particularly vulnerable to sharp exchange-rate movements and the effects of high domestic debt".

It has been an unsteady start to the year on the stock market, with drops being driven by concerns about dwindling oil prices and slowing growth in China. The nation's growth is projected at 6.5 per cent this year, falling to 6.2 per cent in 2017.

In mid-January, China's foreign exchange regulator reassured global markets that the country's economy was stable following drops on the nation's stock exchange earlier in the month. However, despite reassurances, investors remained wary and prepared for further falls in 2016.

The report also highlighted poor growth in other major economies, including the US, Brazil and Germany. The only economy currently in recession is Brazil, with the OECD predicting that it will shrink four per cent this year, following a 3.8 per cent contraction in 2015. It forecasts that it will stabilise in 2017.

Both the US and German economies are predicted to shrink by 0.5 percentage points in 2016, and to make small recoveries in 2017. Growth in Germany is forecast at 1.3 per cent this year and 1.7 per cent in 2017, while the US will expand by two per cent in 2016 and 2.2 per cent the following year.

"Recent data have disappointed and indicators point to slower growth in major economies, despite the boost from low oil prices and low interest rates," stated the OECD's chief economist Catherine L Mann.

"Given the significant downside risks posed by financial sector volatility and emerging market debt, a stronger collective policy approach is urgently needed, focusing on a greater use of fiscal and pro-growth structural policies, to strengthen growth and reduce financial risks," she added.

In light of the report, the organisation is calling for a "stronger collective policy" to help tackle the global economic slowdown. 

"Monetary policy cannot work alone. Fiscal policy is now contractionary in many major economies. Structural reform momentum has slowed. All three levers must be deployed more actively to create stronger and sustained growth," it stated.​