The global economy is trapped in a sluggish growth pattern that will require broader and better-coordinated use of fiscal, monetary, and structural policies to shift towards a more vigorous growth trajectory and ensure that promises made to current and future generations can be honored, according to the OECD in the latest edition of its Global Economic Outlook.
According to the Outlook, the rise in global GDP is expected to be modest at 3% in 2016, remaining roughly at the same level as in 2015. This is due to the combined effects of weak trade growth, underwhelming wage developments, and slowing activity in major emerging markets. Moreover, global GDP is only expected to grow moderately in 2017, reaching 3.3%.
The Outlook highlights several risks that could lead to a downward revision of the forecasts. In the immediate term, a vote by the United Kingdom to leave the European Union would have a negative economic impact on the UK, other European economies, and the rest of the world.
The OECD proposes a series of actions for public authorities, which should include making broader use of fiscal policy and injecting new momentum into structural reforms to escape the trap of sluggish growth.
According to the Outlook, relying solely on monetary policy cannot yield satisfactory results in terms of growth and inflation. Further monetary easing may prove less effective today than in the past, and in some cases, it could even be counterproductive.
In many countries, there is room to mobilize fiscal policies to boost activity through public investment, especially because long-term interest rates have effectively increased fiscal leeway.
Given the weakness of the global economy and against the backdrop of widening inequalities in many countries, more ambitious structural reforms, particularly targeting the services sectors, could according to the OECD strengthen short-term demand and foster long-term improvements in employment, productivity growth, and inclusivity.
