Rising protectionism, financial vulnerabilities, potential volatility from divergent interest rate paths, and disconnects between market valuations and real activity have been identified as potentially derailing GDP growth worldwide.
This is according to the OECD’s Interim Economic Outlook report, which calls for policy responses that advance inclusive growth in the context of increased economic integration.
OECD secretary-general Angel Gurría, said: “Growth is still too weak and its benefits too narrowly focused to make a real difference to those who have been hit hard by the crisis and who are being left behind.
“Now, more than ever, governments need to take actions that restore people’s confidence, while at the same time resist turning inwards or rolling back many of the advances that have been achieved through greater international co-operation.”
Protectionism has been identified as the main threat to the global economy, with rapid growth of private sector credit, and relatively high level of indebtedness, putting a number of emerging markets at risk, particularly China.
Significant financial vulnerabilities arise from an overreliance on monetary policy, which has led to an extended period of exceptionally low interest rates, rising debt levels in some countries, elevated asset prices and a search for yield.
The third risk identified is that the strength of financial market valuations appears disconnected to the outlook for the real economy, where the growth of consumption and investment remains subdued.
There is also a risk of global financial market tensions as interest rates adjust and diverge across the major economies according to the OECD report, which argues that increased inequality must be addressed to stimulate inclusive growth and avoid populist responses.
It states: “Falling trust in national governments and lower confidence by voters in the political systems of many countries can make it more difficult for governments to pursue and sustain the policy agenda required to achieve strong and inclusive growth.
“Rising inequality and growing concern about the fairness of society may also help to undermine trust and confidence in governments.
“Efforts are needed to strengthen domestic policies that support trade openness, maximise the gains from trade and ensure that the benefits are fairly shared, with obstacles to the process of reallocation and transition for workers reduced.”
The OECD have also upgraded the UK’s projected growth to 1.6% for this year, up from its 1.2% November forecast, providing a boost to chancellor Philip Hammond ahead of announcing his spring budget later today.
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