OECD Says EU Major Risk to Global Growth

The global economy will gradually improve over the next two years but Japan will grow less than previously expected while the euro zone struggles with stagnation and an increased deflation risk, the OECD said on Tuesday.

There will be marked divergences among countries both in terms of growth and monetary policy, leading to volatility in debt and foreign exchange markets, the Organisation for Economic Co-operation and Development said.

The United States and Britain will grow more strongly then the euro zone and Japan and, among emerging countries, India, Indonesia and South Africa are set to recover steadily. Russia’s economy is set to stagnate next year and China’s will soften, the think-tank said in its bi-annual economic outlook.

 
Overall, the global economy is set to grow by 3.3 percent this year, 3.7 percent in 2015 and 3.9 percent in 2016, the OECD said, confirming forecasts published before the G20’s summit earlier this month.

While most estimates remained unchanged, Japan’s forecast was more than halved for 2014 and cut to 0.8 percent for next year after it unexpectedly fell into recession in the third quarter. But the OECD still expects Japan to recover as corporate profits remain high and a weak yen will help exports.

A bigger worry for the Paris-based think-tank is the euro area, which it said “may have fallen into a persistent stagnation trap”.

“The euro area is at risk of deflation if growth stagnates or if inflation expectations fall further,” it said.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza