The Organisation for Economic Co-operation and Development on Wednesday slashed its economic outlook for the global economy, citing subdued investment amid doubts over the prospects for stronger growth. It also downgraded expectations for GDP growth in Japan.
The OECD now expects the world economy to grow 3.1 percent this year, down from a 4.0 percent expansion forecast in March and projects the economy to grow 3.8 percent in 2016, compared with an earlier estimated 4.3 percent rise.
“Global growth is projected to strengthen in the course of 2015 and 2016, but will remain modest” relative to the period before the 2008 global financial crisis, the OECD said in its economic outlook report.
Though growth is underpinned by monetary easing measures and lower oil prices, “Investment, a crucial component to the outlook, has yet to take off,” said the Paris-based club of 34 wealthy nations.
“The weakness of the projected pickup is in part due to continued subdued investment,” it said, adding that the main reason is “the weak recovery itself and doubts over the prospects for stronger growth.”
The OECD slashed the growth projection for the United States to a 2.0 percent increase this year and 2.8 percent expansion in 2016, down from the previously forecast 3.1 percent and 3.0 percent growth, respectively.
It slightly downgraded the outlook for China, now expecting the economy to grow 6.8 percent in 2015, compared with the 7.0 percent expansion forecast earlier.
The OECD left unchanged its growth projection for the euro area, which is expected to expand 1.4 percent this year.
As for Japan, the OECD now expects the country’s gross domestic product to grow 0.7 percent this year, down from an earlier projected 1.0 percent, as a recovery in private consumption remains modest after a setback after last year’s sales tax hike.
The OECD also pointed out that the country’s business investment has been “sluggish” since the second quarter of 2014 despite the weaker yen and record high earnings by the corporate sector.
“The planned cuts in Japan’s relatively high corporate income tax rate are expected to spur investment, but other measures are needed,” the organization said.
It maintained the projection that the economy is expected to grow 1.4 percent in 2016.
The organization urged Japan to draw up a “detailed and credible strategy” to achieve its key fiscal reform and maintain confidence in its fiscal sustainability.
“Japan’s unprecedentedly high level of public debt implies that, in the absence of a credible plan to achieve its fiscal target, Japan could face a loss of confidence in its fiscal sustainability,” the OECD said.
The organization warned that the lack of such a plan “in turn could destabilize the financial sector and the real economy with large spillovers to the world economy.”
The report came as the government of Prime Minister Shinzo Abe is planning to compile a fiscal reform plan by the end of June to achieve the goal of turning its primary balance deficit into a surplus by fiscal 2020.