Global economic watchdog warns of weak recovery, slashes U.S., Canada forecasts

PARIS – The world economy risks being bogged down in a low-growth spiral unless measures are taken to spur demand and incite businesses to boost their stubbornly sluggish investments.

That’s the conclusion of the latest economic forecast from the Organization for Economic Cooperation and Development, the Paris-based body made up of 34 of the world’s most developed countries.

In its biannual checkup on the world’s economic health, the OECD has slashed its forecast for the U.S. economy, where winter blizzards in the Northeast and port disruptions on the West Coast caused a first quarter economic contraction.

The OECD now expects U.S. economic growth to slow to two per cent this year from 2.4 per cent in 2014, compared to March when it forecast an acceleration to 3.1 per cent in 2015.

The Canadian growth estimate was also lowered to 1.5 per cent, from a March prediction of 2.2 per cent and November’s estimate of 2.5 per cent.

The Canadian economy has been hit hard by the collapse of global oil prices that began in late November as well as weak conditions in the United States, its biggest trading partner.

Statistics Canada reported last week that the economy shrank in the first quarter, with gross domestic product declining by 0.6 per cent.

The OECD reported Wednesday that non-energy exports from Canada are begnning to pick up with the help of favourable currency fluctuations and stronger markets.

“Non-oil related business investment should strengthen with a lag. Following recent weather-related weakness, consumption growth should pick up,” the OECD report says.

Two of Canada’s major banks also updated their economic projections Wednesday. CIBC was even more pessimistic about this year’s growth than the OECD while Royal Bank took more positive view.

RBC is projecting Canada’s economy will show 1.8 per cent inflation-adjusted growth this year and 2.6 per cent in 2016, while CIBC is estimating 1.4 per cent growth this year.

The OECD is now projecting overall global economic growth at 3.1 per cent this year — a half-point less than in November. Next year’s growth projection has been trimmed slightly to 3.8 per cent, from the previous estimate of 3.9 per cent.

The 19-member eurozone is still expected to grow 1.4 per cent this year, unchanged from the March forecast. The OECD also trimmed its forecasts slightly for China and Japan.

The world economy has suffered from stubbornly weak growth throughout its recovery from 2009’s Great Recession. This, the OECD notes, “has had very real costs in terms of foregone employment, stagnant living standards in advanced economies, less vigorous development in some emerging economies, and rising inequality nearly everywhere.”

The OECD says weak investment, with growth of little more than 2 per cent this year, is partly to blame for the slack recovery. Its forecast of stronger growth in 2016 hinges on its prediction that investment will almost double to 4 per cent next year _ although it warns that this upturn “could remain elusive.”

One consequence of the economy’s unusually weak recovery is that unemployment in the OECD region has fallen only 1 per cent since its 2010 peak. By 2016, the group warned, 40 million people will be out of work, 7.5 million more than immediately before the crisis.