THE latest OECD Global Economic Outlook has stated that there is a need to
make better use of fiscal initiatives to escape low-growth trap. Expansionary
fiscal initiatives and maintaining trade openness are needed to push the global
economy out of today’s low-growth trap, it adds.
"The global economy has the prospect of modestly higher growth, after
five years of disappointingly weak outcomes," OECD Secretary-General Angel
Gurría said while launching the Outlook. "In light of the current context of
low interest rates, policymakers have a unique window of opportunity to make
more active use of fiscal levers to boost growth and reduce inequality without
compromising debt levels. We urge them to do so," Mr Gurría
said.
The
Outlook projects that well targeted public spending initiatives could catalyse
private economic activity and help to get the global economy out of the
low-growth trap. The ongoing or projected shift in the fiscal stance in a number
of major economies accounts for much of the modest increase in global growth to
3.3% in 2017 and 3.6% in 2018.
Among
the major advanced economies, activity is expected to accelerate in the United
States, due to an assumed easing of fiscal policy, with the economy projected to
grow by 2.3% in 2017 and 3% in 2018. The euro area will grow at a 1.6% rate in
2017 and by 1.7% in 2018. In Japan, growth is projected at 1% in 2017 and 0.8%
in 2018. The 35-country OECD area is projected to grow by 2% in 2017 and 2.3% in
2018, according to the Outlook.
With
rebalancing continuing in China, growth is expected to continue drifting lower,
to 6.4% in 2017 and 6.1% in 2018. India’s growth rates are expected to hover
above 7.5% over the 2017-18 period, but many emerging market economies will
continue to grow at a more sluggish pace. The deep recession in Brazil is
expected to end in 2017, after which the economy will grow at a 1.2% rate in
2018.
The
Outlook draws attention to conditions that create a "window of
opportunity" for new fiscal initiatives, as extraordinarily accommodative
monetary policy has led to very low interest rates and created fiscal space. A
targeted annual increase in public spending of ½ percent of GDP could be
financed for several years in most countries without increasing the debt-to-GDP
ratio in the medium term. Combining this initiative with structural reforms, and
acting collectively across countries, would boost the impact, according to the
Outlook.
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