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| 20 September, 2017

Euro zone catches up with U.S. as global growth gets more in sync

20 Euro banknotes are seen in a picture illustration, August 1, 2016.

20 Euro banknotes are seen in a picture illustration, August 1, 2016.

REUTERS/Regis Duvignau


PARIS - Growth rates among the world’s major economies are synchronising at levels not seen in years as the euro zone catches up with United States, the OECD said on Wednesday in an update of its forecasts.

The global economy is set for growth this year of 3.5 percent before reaching 3.7 percent next year, up marginally from estimates in June and the best rate since 2011, the Organisation for Economic Cooperation and Development said.

“We’ve got some short-term momentum, it’s become broad-based and one way to measure that is to look around the world and see nobody is contracting for the first time since 2008,” OECD chief economist Catherine Mann said.

“We know that a synchronised upturn is an important signal for businesses to invest,” Mann told Reuters in an interview.

The Paris-based policy forum raised its outlook for euro zone growth this year to 2.1 percent, up from 1.8 percent the last time the OECD issued forecasts and putting it on par with the United States, whose forecast of 2.1 percent was unchanged.

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Erstwhile euro zone laggards France and Italy were among the main drivers for this brighter outlook. French growth this year was revised up to 1.7 percent from 1.3 percent previously, while Italian growth was bumped up to 1.4 percent from 1.0 percent.

Not even a 13-percent increase in the euro’s strength against the dollar since the start of the year would knock back euro zone growth as firm global demand drove exports, Mann said.

BRITAIN OUTCLASSED BY EURO ZONE Outclassed by a resurgent euro zone, Britain would lag all major economies with growth of only 1.6 percent this year - no better nor worse than estimated in June - as it struggled to get to grips with its exit from the European Union.

On monetary policy, the OECD said the U.S Federal Reserve should stick to gradually raising interest rates and soon start reining in its balance sheet. Meanwhile, the European Central Bank should keep trimming its assets purchases before phasing out its negative interest rates.

But central banks would need a strategy rethink if exuberant financial markets stumbled and inflation targets continued to prove elusive.

Among the major economies not within the 35-nation OECD, India was a rarity in seeing its estimates cut. India’s growth estimate was cut to 6.7 percent from 7.3 percent previously, due to the impact of reforms on goods and services tax.

China, on the other hand, was looking stronger with its growth revised up to 6.8 percent for 2017 and 6.6 percent for 2018.

Reporting by Leigh Thomas; Editing by Sudip Kar-Gupta

© Reuters News 2017