OECD: global recovery is ‘real’ but weak

If you are after economic growth, then there’s really on one place to look – Asia (ex-Japan).

In its latest projections for global and large economy growth, the Organisation for Economic Cooperation and Development has revised down prospects for much of the world.

Australia is one of the few brighter spots in the developed world – the economy is expected to grow by 2.5 per cnet next year, and 3 per cent in 2015.

But the OECD’s outlook is premised on a number of important assumptions, not least that the Abbott Government doesn’t implement any more spending cuts than have already been factored in, and that the Reserve Bank of Australia continues to hold interest rates down.

The OECD’s far-from-buoyant view of the world economy in May has been replaced by an even less optimistic outlook, shaped by a series of disappointing results in some emerging economies and several disturbing developments – not least the ridiculous near-debt default in the US.

Nonetheless, such crazy political brinkmanship to one side, OECD Secretary-General Angel Gurria says the recovery underway in the global economy is “real” – you just might have trouble noticing it much for the next little while.

In figures released overnight, the OECD predicts global growth will accelerate from 2.7 per cent this year to 3.6 per cent in 2014 and 3.9 per cent in 2015.

The picture is even less impressive across the OECD member countries – average growth of 1.2 per cent this year, 2.3 per cent in 2014, and 2.7 per cent in 2015.

The US is expected to do ok – growing by 3.5 per cent by 2015, with unemployment headed down close to 6.1 per cent by December of that year.

But the outlook for the Euro area and Japan remains miserable – growth won’t break above 2 per cent in the former and will be well below 1 per cent in the latter.

Underlining the human tragedy of the deep recession in much of Europe, the Euro area unemployment rate is still expected to be close to 12 per cent by the end of 2015.

The really sobering thought in looking at these projections, is that they rely on so many things going right – not least that politicians in the US, Europe and elsewhere, don’t engage in yet more bouts of indulgent and destructive policies that undermine what financial stability there is or erect further barriers to international trade.

Risks abound.

The big plus for Australia is that China is expected to be one of the few bright spots in the global outlook, sustaining annual growth at or above 7.4 per cent over the next two years despite the deadweight of Europe and Japan.

Reflecting this, the OECD is a bit brighter than the Reserve Bank in its outlook for Australia – expecting that growth in the country will accelerate from 2.5 per cent next year to around 3 per cent in 2015 as activity in the non-mining sectors of the economy “gradually strengthens”.

But, it warns, this is outcome is far from a given.

It has warned the Abbott Government against any further fiscal tightening than has already been planned, and is advising the RBA to maintain its current accommodative monetary policy stance.

On taxation, it backs the business sector’s bid for a lower corporate tax rate.

On housing, it advises a shift to “more efficient” real estate taxation, which is code for the states to abolish stamp duties.

It will be interesting to see if the Government’s Commission of Audit is paying attention.