PARIS: The Organization for Economic Cooperation and Development (OECD) cut its world economic growth forecasts for 2015 and 2016 on Wednesday, warning of a dramatic slowdown in Brazil and a global outlook clouded by uncertainty over China.
The policy analysis club of 34 advanced economies had already slashed its economic forecasts just three months ago because of US weakness.
Now the OECD is returning to its calculations with an axe, citing in part a crisis gripping emerging markets as China’s economic boom, and its voracious appetite for raw materials, slows.
The OECD trimmed its world growth forecast for this year to 3.0 percent, lopping 0.1 percentage points off its previous estimate made in June.
The group issued its interim economic outlook on the eve of a US Federal Reserve decision on whether to lift interest rates for the first time in nine years. Analysts say such a tightening could chill global activity.
The forecast for Brazil took the biggest hit, by far, in the latest OECD report.
Suffering like other emerging economies from a commodity price crash, engulfed in recession and with its debt downgraded by Standard & Poor’s this month to junk bond status, Brazil had its economic outlook for this year downgraded to a 2.8-percent contraction instead of a 0.8-percent contraction.
For the world economy in 2016, the OECD lowered the outlook to growth of 3.6 percent, a reduction of 0.2 percentage points from three months ago.
While the US recovery was now solid, the OECD said the picture worldwide was muddied by “puzzles” in other big economies with erratic Japanese data, the euro area’s recovery lacking some vigor and activity in China difficult to assess.
“This leaves the outlook clouded by important uncertainties,” it said.
One big uncertainty is whether the emerging markets will be hurt by rising world interest rates or a sharper than expected slowdown in China, sparking financial and economic turbulence that could be a “significant drag” on advanced economies,” the OECD said.
The group supported a gradual rise in US interest rates but said the pace will be critical.
“In the United States, progress on closing output and employment gaps warrants an upward interest rate path, but at a very gradual pace,” the OECD said.
“The timing of the first rate hike is of secondary importance compared to the pace of increase. Clear communication of that pace will help to minimize financial market volatility.”
China faces a challenge trying to sustain growth while changing its economy from an investment-powered model towards one led by consumers, the OECD said.
“The Chinese authorities face the policy challenge to sustain growth while advancing structural change and managing risks,” it said.
“Additional stimulus may be needed, but it should rely less on debt-financed infrastructure and construction spending, and more on an expansion of social expenditures that will help support consumer spending and adjustment towards a more balanced growth model.”
The latest report means the OECD has cut its 2015 global growth outlook by a full percentage point from March, when it foresaw a worldwide economic expansion of 4.0 percent.