OECD: governments should boost spending to avoid “low growth trap”

OECD: governments should boost spending to avoid “low growth trap”

02/06/2016 source “América Economía”

The Organization for Economic Cooperation and Development (OECD) states that the world economy is stagnant in a “low growth trap” and that will grow in 2016 at its slowest pace since the financial crisis for the second consecutive year.

With reticent companies when investing and consumers cautious about spending, the world economy will grow only 3% this year, estimated the entity, urging governments to boost spending. The data will not be better than last year – which was the worst since 2009 – although growth will modestly rise up to 3,3% next year, according to their economic prospects.

Since the OECD countries grow on average a half its estimated potential, it would lack 70 years to double the standards of living, the double of the rate of two decades ago.

The chief economist of the OECD, Catherine Mann, warned that countries cannot depend only on central banks to boost the return to higher growth rates, and said that the balance between the benefits and risks of exceptionally relaxed monetary policy is pending to the side of risks. Thus, says Mann, governments should not hesitate when to allocate money to initiatives that boost growth, such as education and infrastructure, financing a greater expense thanks to low interest rates in many countries.

“The scope of the low interest rates set by central banks gives a tax margin to governments and we say they should use it,” added Mann.

Referring to specific cases, although the OECD has not cut its global growth forecasts in relation to the last update (in February), said the forecast for the United States had worsened. The entity cut out of 2% to 1,8 & the US growth forecast, as it faces a weak external demand and a shortage of investments in the oil sector and mining.

As regards the United Kingdom, the OECD reiterated the warning that the country will suffer a sharp slowdown in growth if the voters choose in the referendum to abandon the European Union.