OECD: Global Economy Stalling

 19 Feb 2016    Cargo Volumes and Throughput, Carriers, Containers, Environment , Global Economy/Trade, Port Planning, PTI Multimedia

On the back of weak trade and investment, the world economy is likely to expand no faster in 2016 than in 2015, its slowest pace in five years, with the Interim Economic Outlook calling for a stronger policy response by changing the policy mix to confront the current weak growth more effectively.

It points out that sole reliance on monetary policy has proven insufficient to boost demand and produce satisfactory growth, while fiscal policy is contractionary in several major economies and structural reform momentum has slowed.

The news will come as an ominous portent for the shipping industry which is desperate for an injection of demand to vindicate its move to invest in more and more capacity.

The outlook suggests that a stronger fiscal policy response, combined with renewed structural reforms, is needed to support growth and provide a more favourable environment for productivity-enhancing innovation and change, particularly in Europe.

The OECD says monetary policies should remain highly accommodative in advanced economies, until inflation has shown clear signs of moving durably towards official targets.

In emerging market economies, monetary support should be provided where possible, taking into account inflation developments and capital market responses.

Catherine L. Mann, Chief Economist at the Organisation for Economic Cooperation and Development, said: “With governments in many countries currently able to borrow for long periods at very low interest rates, there is room for fiscal expansion to strengthen demand in a manner consistent with fiscal sustainability.

“The focus should be on policies with strong short-run benefits and that also contribute to long-term growth. A commitment to raising public investment would boost demand and help support future growth.”

The downgrade in the global outlook since the previous Economic Outlook in November 2015 is broadly based, spread across both advanced and major emerging economies, with the largest impacts expected in the US, the euro area and economies reliant on commodity exports, like Brazil and Canada.

Financial instability risks are substantial, as demonstrated by recent falls in equity and bond prices worldwide, and increasing vulnerability of some emerging economies to volatile capital flows and the effects of high domestic debt.

Ms Mann said: “Global growth prospects have practically flat-lined, recent data have disappointed and indicators point to slower growth in major economies, despite the boost from low oil prices and low interest rates.

“Given the significant downside risks posed by financial sector volatility and emerging market debt, a stronger collective policy approach is urgently needed, focusing on a greater use of fiscal and pro-growth structural policies, to strengthen growth and reduce financial risks.”

The OECD projects that the global economy will grow by 3% in 2015, which is in line with global conglomerate Maersk’s recent prediction, and 3.3% in 2017, which is well below long-run averages of around 3¾%. 

This is also lower than would be expected during a recovery phase for advanced economies, and given the pace of growth that could be achieved by emerging economies in convergence mode.

PTI reported previously that a number of shipping lines are feeling the pressures of a weakening global economy, with many resorting to mergers and alliances to handle the slump in global demand.

CMA CGM recently announced that it is to form a mega-alliance with Asian shipping carriers in a bid to more effectively compete in the market and deal with the global financial downturn.

For all the latest on the OECD, click here