The Organisation for Economic Co-Operation and Development said global growth is expected to slow at a faster rate than anticipated earlier as the world has entered into a low-growth trap. The global growth projection for the year was reduced to 2.9 per cent from the three per cent estimated in June. The forecast for next year was revised from 3.3 per cent to 3.2 per cent.
The reduction in the global growth projections reflected the downgrades in key advanced economies, mainly UK for 2017, which was offset by regular progress in major emerging-market commodity producers. OECD chief economist Catherine Mann said “the sharp slowdown in world trade underlines concerns about the robustness of the economy and the difficulties in exiting the low-growth trap”.
The European Central Bank noted in its economic bulletin that the governing council of the bank will stay vigilant and ready to act, if necessary, to meet its price stability objective. The ECB said the risks to the outlook for global economic activity remain on the downside. The bank observed that although Brexit has so far had limited impact, however the result instigates a rise in macroeconomic uncertainty.
The ECB said “policy uncertainty surrounding the economic transition in China could lead to an increase in global financial volatility”. In its September meeting, the ECB left its interest rates unchanged and confirmed its asset purchase programme of €80 billion monthly, to try to get consumer price growth back to its target rate of two per cent.
The Federal Reserve opted to keep its interest rates unchanged between 0.25 per cent and 0.5 per cent, though it projects a rate hike before the end of the year.
The Federal Open Market Committee said that even though latest economic data showed that growth is picking up, it was insufficient to persuade a majority of its members to raise interest rates. The committee said “the case for an increase in the federal funds rate has strengthened, but decided, for the time being, to wait for further evidence of continued progress toward its objectives”. The Fed’s so-called dot plot, that indicates its outlook of monetary policy, shows that members still anticipate that the Fed will raise its interest rates a quarter point in 2016.
This report was compiled by Bank of Valletta plc for general information purposes only.