OECD urges governments to take ‘urgent’ stimulus action

OECD urges governments to take ‘urgent’ stimulus action

Call for ‘bold public investment’ as weak economic growth set to persist

Governments need to take “urgent” action to improve the medium-term prospects for their economies, the OECD said on Thursday, as it forecast that the current weak global growth will continue for the next two years.

The Paris-based international organisation recommended that advanced economies should kick-start private investment in new energy technologies and digitalisation with “bold public investment”.

The OECD said that stimulus efforts, along with greater international co-operation on trade and taxation and more active demand management, could boost the growth performance of the G20 group of major economies by more than 1 per cent over three years.

Companies are holding back investment in buildings, plant, machinery and software due to worries about economic uncertainty and trade tensions, the organisation said. Laurence Boone, OECD chief economist, warned of the risk that “sluggish performance” would become “entrenched”.

The OECD forecasts global growth of 2.9 per cent this year, the same next year and only a marginal improvement to 3 per cent in 2021. This was “down from the 3.5 per cent rate projected a year ago and the weakest since the global financial crisis”, Ms Boone said.

The outlook is even more gloomy than that forecast by the IMF, which last month said it expected global growth of 3 per cent this year, rising to 3.4 per cent in 2020.

While the OECD was marginally more optimistic about European economic performance, its latest twice-yearly forecasts revised the outlook for many emerging economies downwards and left the US forecast of 2 per cent growth unchanged for the crucial election year of 2020.

The recent rebound in financial markets suggests that investors think the worst of the slowdown is over, but Ms Boone said the latest data did not match the positive mood and buoyant markets “do not mean we are reversing the [economic] tide”.

Without further action, the OECD warned that the global economy would face a further deterioration as the costs of trade wars became more apparent and China’s changing economic model reduced its demand for capital-intensive equipment from other nations.

Measures to boost long-term economic performance and encourage greater entrepreneurial activity should be a greater priority for governments than implementing further policies to stimulate demand or change government regulations, the OECD said.

Urging countries to prioritise international co-operation, the OECD called for “trade policy predictability” and an end to the “surge in trade-restricting measures” which it said “could go a long way to reduce uncertainty and revive growth”.

Ms Boone called on countries to create national investment funds to help more companies invest in digital transformation, increase productivity and shift to green energy, rather than wrangling over the short-term benefits of public spending.

“The lack of policy direction to address climate change issues weighs down investment,” Ms Boone said, because “without the necessary public investment [in adapting to global warming], businesses will put off investment decisions, with dire consequences for growth and employment”.

The OECD also recommended that governments should implement rigorous competition policies and ensure workers were protected and retrained to cope with the arrival of new technologies in the workplace.