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Boost for chancellor as OECD revises up growth

08 March 2017

Unchanged from last estimates, the expected global modest recovery would be the result of continuing and expected combined fiscal and structural initiatives in the major economies, notably China, Canada that would help to boost global demand, according to the OECD.

The OECD's latest interim economic outlook sees the global economy going through a timid recovery that could be easily spooked by several factors, among them housing affordability.

"UK growth is expected to ease further as rising inflation weighs on real incomes and consumption, and business investment weakens amidst uncertainty about the United Kingdom's future trading relations with its partners".

The OECD flagged Canadian house prices, particularly those in Vancouver and Toronto, as a risk in a report it released last June on Canada.

"Financial market expectations imply that a large divergence in short-term interest rates between the major advanced economies will open up in the coming years". The OECD said this has led to higher levels of debt and inflated asset prices.

"Falling trust in national governments and lower confidence by voters in the political systems of many countries can make it more hard for governments to pursue and sustain the policy agenda required to achieve strong and inclusive growth", the OECD said. The OECD noted, however, that expectations for company earnings in the US and Europe have not been revised up on the whole. It still expects Brexit to impose a drag on GDP growth in 2017 and 2018.

Eurozone inflation above target for first time in 4 years
Rising fuel prices boosted Eurozone inflation again last month to reach two per cent for the first time in four years. The increase has been mostly driven by higher energy prices (+9.2%) and partly by food prices (+5.2%).

Yet the OECD's forecast is loaded with caution. And growth in consumption and investment is still lagging.

The organization noted the global economy remains in a "low-growth trap".

In February the Bank upgraded its central 2017 growth forecast to 2 per cent, on the back of stronger growth in the final quarter of 2016. The OECD is also anxious financial markets are overestimating the current health of developed economies.

The Organisation for Economic Cooperation and Development (OECD) has become the latest major worldwide organisation to increase its growth forecasts for the United Kingdom, effectively acknowledging that previous forecasts were too pessimistic about the impact of last June's vote to leave the European Union.

That said, the OECD thinks solid domestic demand - supported by a robust labor market and improving wages - will buttress healthy fiscal expansion from President Donald Trump's new administration.

Boost for chancellor as OECD revises up growth