Slowdown in emerging economies could be a drag on global growth – OECD

Written by on March 12, 2014 in Business - No comments

Recovery is under way in the world’s advanced economies, underpinned by supportive financial conditions and reduced drag from budgetary tightening, but activity in the major emerging markets is mixed, according to the latest interim economic assessment, released on March 11 by the Organisation for Economic Cooperation and Development (OECD).

The recovery is advancing well in the United States and the United Kingdom, but proceeding more unevenly in Japan and still lagging behind in the euro zone, according to the OECD.

A series of one-off factors – severe winter weather in North America and anticipation of an April 1 rise in Japanese consumption tax – have led to an uneven pace of growth.

Some major emerging economies continue growing at a fast pace, including China, but others have lost momentum. Tighter financial conditions are compounding the growth slowdown in emerging economies.

Presenting the Interim Economic Assessment in Paris, OECD Deputy Secretary-General and Acting Chief Economist Rintaro Tamaki said: “The gradual recovery in the advanced economies is encouraging, even if temporary factors have pushed down growth rates in the early months of this year, while the slowdown in emerging economies is likely to be a drag on global growth.”

“With remaining fragilities in the euro area, Japan only just beginning to confront its daunting fiscal challenges and the possibility of a slowdown in China, it is critical that advanced and emerging economies alike recognise the growing importance of structural reforms to reinvigorate growth and boost job creation,” Tamaki said.

The OECD projects that the US will grow at an annualised rate of 3.1 per cent in the second quarter of 2014, after first quarter activity was affected adversely by exceptionally cold weather. Extreme weather also impacted Canada, which is expected to experience similarly uneven growth in the first quarter, followed by a bounce back in the second quarter that should push the growth rate up to 2.4 per cent.

In Japan, planned fiscal consolidation is projected to cut into near-term growth. Implementation of a higher consumption tax rate is expected to result in a surge in activity in the current quarter, as consumers bring forward purchases, pushing growth up to an annualised rate of 4.8 per cent. This will be counterbalanced by a contraction of activity in the second quarter before a more normal pattern of recovery gets back on track, the OECD said.

The UK is projected to grow at annualised rates above three per cent in the first and second quarters, but the euro area’s growth rate – while improving – still lags that of other advanced economies.

Wide disparities are still seen in Europe, where the three largest economies (Germany, France and Italy) will grow at a combined weighted average of 1.9 per cent rate in the first quarter and a 1.4 per cent pace in the second. Germany is forecast to grow by about 3.7 per cent annualised in the first quarter and 2.5 per cent in the second quarter, while the French economy’s annualised growth rate will hover around one per cent and Italy’s will remain below one per cent for each of the first two quarters.

(Photo: Darren Deans/sxc.hu)

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