The OECD has slashed its global economic outlook for 2016, reflecting subdued trade growth amid China’s economic slowdown.
The organization now expects the global economy to grow 3.3 percent next year, downgraded from 3.6 percent in its September forecast, as other emerging markets have weakened further, and to expand 3.6 percent in 2017.
“A more significant slowdown in Chinese domestic demand could hit financial market confidence and the growth prospects of many economies, including the advanced economies,” the Paris-based organization said Monday in its economic outlook report.
The OECD also lowered its growth outlook for Japan, saying it now expects the economy to expand 1.0 percent in 2016, compared with an earlier projection of 1.2 percent, dampened by a sharp slowdown in external demand and sluggish private consumption.
Growth in the world’s third-largest economy is expected to decelerate further in 2017 to 0.5 percent, following the scheduled consumption tax hike in April that year, though the economy will be supported by rising real wages, the OECD said.
“The outlook for Japan remains softer than in other advanced economies, despite an anticipated upturn in real wage growth,” reflecting weak external demand, especially in Asia, and strong fiscal headwinds particularly from the planned tax hike, it said.
Slowing demand in Asian countries has resulted in a “marked contraction in Japan’s exports and industrial production,” the OECD said.
The government is scheduled to release gross domestic product data for the July-September period on Nov. 16. After contracting an annualized real 1.2 percent in the April-June period, sluggish exports and production are raising concern that the economy may have shrunk again.
The organization called for additional measures aimed at fiscal consolidation, after the Abe administration announced a revamped fiscal strategy relying on stronger economic growth.
The OECD warned that even with the planned consumption tax hike, Japan is “not on track” to achieve a primary surplus by fiscal 2020, calling for further increases in the consumption tax rate and broadening of the personal and corporate income tax bases.
Growth in China is now projected at 6.5 percent in 2016 and 6.2 percent in the following year as its economy faces sluggish manufacturing investment amid excess capacity.
The OECD expects growth in the United States to remain relatively solid at 2.5 percent in 2016, led by strong household consumption and a moderate upturn in private-sector investment.
But it warned that the normalization of accommodative policy will pose challenges for emerging markets, with the Federal Reserve appearing poised to raise interest rates as early as December.
“With globally integrated financial markets, it may be difficult for them to respond to any interest rate increases in the United States and to any associated depreciation of their currencies or capital outflows,” the report said.
The OECD is projecting the eurozone to grow 1.8 percent in 2016, supported by sustained monetary stimulus as well as lower oil prices, while a high level of private debt will remain a drag on consumption and investment in many countries.
Among emerging markets, recession has emerged in Brazil and Russia, which is likely to continue next year amid weakening prices for oil and other commodities, the OECD said.