In its interim economic assessment the OECD said it now expects the US will grow by 2.1% this year and by 3.1% in 2015, the UK is to grow at 3.1% this year and 2.8%in 2015 and the eurozone is projected to grow just 0.8% in 2014 and a 1.1% in 2015.
Japan is projected to grow by 0.9% this year and 1.1% in 2015 while Canada is expected to achieve 2.3% this year and 2.7% in 2015.
Within the eurozone there is significant variation with Germany expected to deliver 1.5% in both 2014 and 2015 but France just 0.4% in 2014 and 1% in 2015, and Italy delivering a -0.4% fall in 2014 and a meagre rise of 0.1% next year.
The OECD cites the lack of growth in the eurozone as a major drag on the world economy, not merely a matter effecting Europeans.
It said that the low-growth outlook and the risk that demand could be further sapped if inflation remains near zero or turns negative it recommends ‘more monetary support’ for the euro area. More monetary support would be taken by many to mean full quantitative easing involving buying up sovereign debt, given that the programs already announced provide for extensive purchases of private sector debt.
The other principle factors behind the lowering of the OECD’s expectations include the volatile situation in the Middle East with the Islamic State’s emergence, tension between Russian and Ukraine and the uncertainty being created by the Scotland independence referendum. It said the ‘bullishness of financial markets’ is at odds with the intensification of what it sees as these significant risks.
There was also a nod to the growing concern over the impact of divergence in global monetary policy, with the US and UK expected to enter tightening cycles as Europe and Japan carry out further loosening.
Economics consultancy Fathom said it expects Mario Draghi and the ECB to give in to this pressure soon or later. It said the measures already announced are just a ‘staging post on the path to full-blown QE’ and the central bank will in due course announcing plans to buy government debt, particularly German Bunds.
Fathom said it expects the euro to be weaker through the rest of the year than previously thought and eurozone headline inflation will hit zero buy the turn of the year.
