Global economic growth seen sluggish

Workers assembling a car body at a plant in Neckarsulm. OECD sees Germany’s quarter-on-quarter annualised growth rate reaching 3.7 per cent in the first quarter. — Reuters

Global growth is likely to remain sluggish as a slowdown in the developing world undercuts gains in Europe and the United States, a leading international economic body warned on Tuesday.

The Organisation for Economic Cooperation and Development (OECD) said one-off factors like the harsh winter weather in North America and the US government shutdown mean “growth for the major advanced economies in the first half of 2014 will be somewhat slower than in the second half of 2013.”

The underlying trend for those economies, however, continues to be of strengthening growth, said the OECD, a think tank for the world’s most developed countries, in an update to forecasts made in November.

Meanwhile, emerging economies, which now account for over half the world economy, “are experiencing a marked loss of momentum,” the OECD said. If that continues, the OECD warned it “is likely to mean that global growth remains only moderate in the near term.” In its World Economic Outlook, the organisation forecasts global growth of 3.6 per cent this year, from an estimated 2.7 per cent in 2013. It says the recovery in the United States “is relatively well established,” contrary to what it sees happening in the EU and Japan, where the OECD called for further monetary stimulus.

It estimated growth in the United States would slow to 1.7 per cent in the first quarter from the previous three months on an annualised basis, down from 2.4 per cent in the fourth quarter when exceptionally bad weather weighed on activity.

Japanese growth would surge 4.8 per cent in the first quarter from the previous quarter as consumers brought forward purchases ahead of a sales tax increase on April 1.

Turning to Europe, the OECD saw Germany’s quarter-on-quarter annualised growth rate reaching 3.7 per cent in the first quarter before slowing to 2.5 per cent.

France, the eurozone’s second biggest economy after Germany, was seen growing only 0.7 per cent in the first three months of the year, rising to one per cent in the second quarter. Outside the eurozone, the British economy was seen growing 3.3 per cent in both the first and second quarters.

Turning to emerging market economies, the OECD said some were seeing a marked loss of momentum as capital outflows exposed vulnerabilities in some countries.

It noted that Brazil, India, South Africa and Turkey among others have been forced to raise interest rates to keep capital outflows in check.

Meanwhile, weak balance sheets in China raised the risk of a sharp slowdown there, the OECD said.