The Organization for Economic Co-operation and Development on Wednesday trimmed its 2013 growth estimate for the world economy, citing further deterioration in the euro area. However, the organization expects global growth to accelerate next year helped by the ongoing support from accommodative monetary polices.
The OECD warned that future withdrawal of exceptional monetary policy measures could lead to instability in financial markets. It sees the risk of potential growth rates being lower than currently estimated.
In its semi-annual Economic Outlook report, the Paris-based organization said world real gross domestic product will expand 3.1 percent in 2013, instead of the 3.4 percent estimated in November. This will be followed by a 4 percent expansion in 2014, it said.
The 2013 growth outlook for the U.S. was lowered to 1.9 percent from 2 percent. According to the latest estimate, the U.S. will grow 2.8 percent in 2014, which will be faster than other large OECD countries.
The combined growth across OECD countries will increase to 2.3 percent in 2014 from 1.2 percent this year, it estimated.
According to OECD, monetary policy in the U.S. can remain accommodative for an extended period as inflation expectations appear well anchored and still high unemployment will contain wage pressures. However, the pace of further easing through additional asset purchases may need to be gradually reduced.
In contrast to the overall downgrade, OECD upgraded Japan's GDP forecast to 1.6 percent this year and 1.4 percent next year. In November, the estimate for 2013 was at 0.7 percent and for 2014 was at 0.8 percent.
Citing lingering effects of the debt crisis, the ongoing drag from fiscal consolidation and weaknesses in credit markets, the organization downgraded Eurozone GDP outlook. Although interest rate remains at record low, the European Central Bank should do more, OECD chief economist Pier Carlo Padoan said.
It now forecast the 17-nation bloc to contract 0.6 percent in 2013 compared to the prior estimate of 0.1 percent drop. But the euro area is expected to rebound next year, with GDP rising 1.1 percent.
The German economy is forecast to strengthen gradually during 2013. The largest euro area economy is expected to grow 0.4 percent this year and by 1.9 percent in 2014. Meanwhile, the real GDP is projected to be slightly negative in France this year and to reach 0.8 percent in 2014.
The OECD warned governments that urgent action must be taken to reduce unemployment, which has risen to dangerous levels in many countries. Historically high unemployment remains the most serious challenge facing governments, it observed.
While labor markets are set to firm gradually in the U.S. and Japan over the coming two years, unemployment is likely to continue to rise further in the euro area, stabilizing above 12 percent only in 2014, it observed.
China, which is not a member of the OECD, will grow 7.8 percent in 2013 and by 8.4 percent in 2014, it said. With low inflation and substantial slack, the OECD sees room for some monetary relaxation in China.
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