OECD Cuts Global Economic Forecast, Warns of Risks From US

A leading international group on Tuesday cut its forecast for global economic growth through next year, warning that fiscal- and monetary-policy decisions looming in the U.S. could derail the recovery.

The Organization for Economic Cooperation and Development said world economic output will expand 2.7 percent this year and 3.6 percent in 2014. Those figures are down from the group’s May forecast of 3.1 percent growth this year and 4 percent next year.

The forecast for U.S. growth also was cut, to 1.7 percent this year. But the projection for 2014 was increased to 2.9 percent from 2.8 percent.

“The recovery is real, but at a slow speed, and there may be turbulence on the horizon,” said Angel Gurria, the organization’s secretary-general. “There is a risk of another bout of brinkmanship in the U.S., and there is also a risk that tapering of asset purchases by the U.S. Federal Reserve could bring a renewed bout of instability.”

The standoff in Washington over federal spending and the debt limit led to a 16-day partial federal-government-shutdown in October, and brought the nation near a potential default. A last-minute deal put off the next fiscal fight until early next year, with a short-term spending bill set to expire Jan. 15 and the debt limit extended to Feb. 7.

On top of that, world financial officials are watching to see when the Fed will decide to start tapering off its $85 billion in monthly bond-buying. Fed officials have indicated that the reductions could come soon. The change could lead to higher interest rates, which would drain investment from emerging markets.

Gurria said the “exit from non-conventional monetary policy will be challenging.” He echoed concerns raised by Christine Lagarde, managing director of the International Monetary Fund, that the Fed needs to be careful in its tapering to avoid damaging the world economy.

The OECD, which is composed of the world’s 34 most advanced economies, said growth in its member countries would be 1.2 percent this year and 2.3 percent in 2014, the same as forecast in May.

The 17-nation eurozone, emerging from its longest recession, will “witness a gradual recovery,” the OECD said.

The latest forecast for that region is a contraction of 0.4 percent in economic output this year and growth of 1 percent in 2014. In May, the OECD projected the eurozone would contract 0.6 percent this year and rebound to 1.1 percent growth in 2014.

Aside from China, projections for most emerging markets also are down. But growth in some of those nations, such as Chile, Turkey, Mexico, Korea and Israel, still will outperform advanced economies, the OECD said.