“Elusive global growth outlook requires urgent policy response”
These are not my words. Nor are they the UK Government’s nor those of the IMF (although they would sit easily in the organisational mouth of the IMF given some of its research and discussion papers over the last few months).
No, this is the headline which the OECD attached to its release of its latest worldwide Interim Economic Outlook (“IEO”) report (). It is also the subtitle of the presentation by the Chief Economist of the OECD when she presented the IEO report in Paris on 18th February.
Much of what passes for economic comment by supra-national bodies such as the OECD and the IMF can be a little opaque at times. It can also come across as so much dry and dusty econo-techno speak. But we shouldn’t let that mislead us. This is pretty incendiary stuff.
The report sets out its view that worldwide growth in 2016 will be the same as in 2015 – and helpfully clarifies that 2015’s growth was the slowest pace for 5 years. It also states that its view has been ‘downgraded’ (ie it thinks things have got worse) than the one it held in November 2015. So far, so obvious many of us in the UK would say.
Where things start to get interesting (as in the sense of the Chinese curse) is the OECD’s view that this downgrade is broadly based and spread across both advanced and major emerging economies. in case you are wondering, the UK counts as one of the advanced economies.
Financial instability risks are “substantial”. That sounds like OECD speak for – ‘the worldwide financial sector has not been adequately reformed or regulated such that it no longer poses a big risk to the world economies’.
But it gets better (or worse, depending upon your position on the debate over austerity cuts to public expenditure). The OECD calls for a ‘stronger policy response’ by governments. Adding that ‘sole reliance upon monetary policy (ie low base rates) has proven insufficient to boost demand’. In addition fiscal policies (ie cutting public expenditure in order to reduce deficits) has proved contractionary (ie it has reduced growth).
The OECD could not be more clear in its conclusions: “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 growth.”
As Keynes noted, one doesn’t solve an economic crisis based upon reduced demand by cutting government expenditure and reducing demand further. But perhaps Mr Osborne would not disagree – let’s see what comes out of The National Infrastructure Commission’s work. You will remember that this was created in October 2015 and Mr Osborne announced something of a surprise that Lord Adonis (Labour) had agreed to be its Chairman. Once again, interesting times indeed.
For more information on the subject, please contact Stephen Gregson on 01772 821021.