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Emerging market slowdown and drop in trade clouding global outlook

A further sharp downturn in emerging market economies and world trade has weakened global growth to around 2.9% this year – well below the long-run average – and is a source of uncertainty for near-term prospects, says the OECD.

In its latest twice-yearly Economic Outlook, the OECD projects a gradual strengthening of global growth in 2016 and 2017 to an annual 3.3% and 3.6% respectively. But a clear pick-up in activity requires a smooth rebalancing of activity in China and more robust investment in advanced economies.

Emerging market challenges, weak trade and concerns about potential output suggest higher downside risks and vulnerabilities compared with the OECD’s June Outlook.

Presenting the Outlook in Paris, OECD Secretary-General Angel Gurría said: “The slowdown in global trade and the continuing weakness in investment are deeply concerning.  Robust trade and investment and stronger global growth should go hand in hand. G-20 leaders meeting in Antalya need to renew their efforts to secure strong, sustainable and balanced growth.”

In the US, output remains on a solid growth trajectory, propelled by household demand, with GDP expansion expected to be  2.5% next year and 2.4% in 2017.

The recovery in the euro area is set to strengthen, helped by accommodative monetary policy, lower oil prices and an easing of the pace of budget tightening. Euro area activity is expected to grow by 1.8% in 2016 and 1.9% in 2017.

In Japan, recovery was derailed in 2015 by a sharp slowdown in demand from other Asian economies and sluggish consumption. Japan’s GDP growth is expected to accelerate to 1.0% next year, but to slow to 0.5% in 2017 due to the planned consumption tax hike.

Economic growth in China is projected to slow to 6.8% in 2015 and to continue to decline gradually thereafter, reaching 6.2% by 2017, as activity rebalances towards consumption and services. Achieving this rebalancing, whilst avoiding a sharp reduction in GDP growth and containing financial stability risks, presents significant challenges.

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Courtesy of the OECD