OECD States Q4 Growth Slowed

Economic growth in developed countries slowed sharply in 2016, and eased as the year drew to a close, figures from the Organization for Economic Cooperation and Development showed Monday.

The Paris-based research body said the combined economic output of its 35 members during 2016 was 1.7% higher than in the previous year, but that marked a slowdown from the 2.4% rate of growth recorded in 2015 and was the weakest since 2013, news outlets reported.

OECD figures showed that quarter-to-quarter growth eased to 0.4% in the final quarter of last year from 0.5% in the three months to September.

The slowdown underlines the anemic nature of the recovery from the global financial crisis and the recession that followed, which some experts say has helped fuel the rise of anti establishment political forces in the US, Europe and elsewhere. 

The weakening of growth in 2015 was widespread, affecting the US and the eurozone, while Japanese growth was little changed at a relatively low rate. The slowdown also underscores the limits of central bank stimulus in supporting growth, since many of the world’s leading rate setters were still easing in 2016.

However, there are signs that the global economy is set for a slight pickup in growth this year, although much will depend on the economic policies of US President Donald Trump. While his campaign pledges to increase investment spending and cut taxes should boost growth in the short term if implemented, economists fear the introduction of new trade barriers would have the opposite effect globally, and might prove a more lasting drag.

  Some Doing Better

The UK recorded growth of 0.6% in the last quarter, capping a year in which the economy grew by 2.2%, the fastest growth rate of the G7 group of developed economies, RTT reported.

Germany and France, both members of the G7 as well as the OECD, saw growth accelerate to 0.4% in the fourth quarter, according to the OECD.

However, the world’s largest economy weighed on OECD GDP growth, with expansion in the US economy slowing to 0.5% in the quarter, dipping from 0.9% in the previous three months.

The OECD previously downgraded the UK’s growth prospects, saying it expected the economy to expand by only 1.2% this year. However, that forecast was based on an expectation of lower growth in 2016, which has since been proved inaccurate.

The OECD expects uncertainty around trade arrangements to weigh on the UK’s growth prospects, as the country begins the process of leaving the EU.

Many economists predicted a fall in growth for the UK, but so far there has been little affect on growth, forcing forecasters including the Bank of England to revise their outlooks upwards after consumer spending continued to hold up strongly.

The OECD’s own measure of economic momentum indicates the UK economy may be gaining pace, despite the overhanging Brexit negotiations.

  Italy Needs Reforms

Italy must reform its banking system if it is to continue on a “weak” path to recovery, according to OECD. The country should be prepared to force holders of Italian bank debt to lose money rather than using public funds to bail them out, the report said. 

The report further said: “If public funds are needed to recapitalize distressed banks, take full advantage of EU regulations, imposing losses on equity and bondholders, and restructuring banks’ operations.”

The Italian government has been unwilling to impose losses on bondholders, with large numbers of domestic retail creditors making such a move risky to electoral prospects. The OECD report suggests the government could compensate retail bondholders for their losses.

Italian banks have had the shadow of a large stock of non-performing loans hanging over their balance sheets since the financial crisis, when they were revealed to be vastly overextended.

The OECD will publish new economic forecasts early next month. Last month, the International Monetary Fund said it expects global economic growth will rise to 3.4% this year from 3.1% in 2016.