While the global economy will expand by 3.1% this year, world economic growth will be uneven, with developed countries expected to stagnate and emerging countries expected to outperform the global average, according to a report from the Organisation for Economic Co-operation and Development (OECD). The report, OECD Economic Outlook, maintains that downside risks to the world economy have narrowed, however, recovery in the developed OECD countries is expected to lag behind that of emerging non-OECD countries. The eurozone’s GDP is expected to decline by 0.6% this year, and the US will expand by just 1.9%. Average growth in OECD countries will be just 1.2% in 2013 compared with non-OECD countries, which will grow by 5.5%.
Record unemployment levels have been highlighted as the greatest challenge to growth, in addition to adverse interactions between weakly capitalised banks and restricted government finances in the eurozone. Although the OECD concedes the US has adjusted positively by stabilising private-sector demand and supporting consumption, fiscal concerns remain a significant challenge for the country.
“The global economy is strengthening gradually, but the upturn remains weak and uneven,” said OECD secretary-general Ángel Gurría in an online statement. “Supportive monetary policies, improving financial market conditions and a gradual restoration of confidence are at the root of the recovery. Also, the fiscal adjustment of the last few years is beginning to pay off. Several countries are close to stabilising their government debt-to-GDP ratios and ensuring a gradual decline in indebtedness over the longer term.”
Although the report expects the outlook to be brighter for 2014, forecasting a 2.3% GDP growth across the OECD and a rebound of up to 1.1% in the eurozone, the organisation argues that government policy must do more to implement growth-enhancing measures. It advises that bolder measures are needed to definitively solve the financial and banking crisis and the implementation of a fully fledged banking union must be speeded up.
While jobs are being created in some OECD countries, the organisation cautions that urgent action must be taken to reduce unemployment, which has risen to dangerous levels in many countries. It predicts that without implementing additional policy measures, unemployment will likely rise in the euro area, stabilising at more than 12% in 2014. According to the report, “youth unemployment needs to be tackled and policies adapted to make sure that cyclical unemployment does not become structural”.