FRAGILE: Global economic growth is projected to be no higher than in 2015. Picture: BLOOMBERG
FRAGILE: Global economic growth is projected to be no higher than in 2015. Picture: BLOOMBERG

PARIS — The Organisation for Economic Co-operation and Development (OECD) on Thursday cut its economic growth forecast for this year to 3% from 3.3%, due to disappointing data, sluggish demand, weak investment and a high risk of financial instability.

"Financial instability risks are substantial," the 34-member organisation said in its latest interim outlook, urging a strong collective response to combat sagging global growth, which it predicts will not surpass last year’s pallid showing.

The Paris-based body trimmed its outlook for this year as growth slows in many emerging countries and advanced economies expect to achieve only modest recovery after a 2015 that saw the slowest growth in five years.

In its November outlook, the OECD had already downgraded its initial estimate for this year, citing stagnating trade amid a slowdown in China.

But it said it felt compelled to make further downward revision for this year, while also revising downward an initial November projection for next year to 3.3% from 3.6%.

"A stronger collective policy response is needed to strengthen demand," the organisation said, noting "contractionary" fiscal policy in major economies amid slowing structural reform.

The organisation identified further risks as emerging market currency volatility and debt, notably in Russia, Turkey and Brazil.

It added that poor growth prospects were pushing down equity prices, helping to spark the market volatility seen in recent weeks.

"Structural reform momentum has slowed," added the OECD, identifying a combination of negatives affecting the global outlook, with fuel and commodity prices in a trough amid sluggish demand while China remains stuck in third gear.

"Monetary policy cannot work alone" to achieve sustained growth, the OECD warned, as the organisation noted projected growth rates that "are the lowest in the past five years and well below long-run averages".

"Global (gross domestic product) growth is projected to be no higher than in 2015, itself the slowest pace in the past five years," it said.

On a country-by-country basis, the OECD saw across-the-board weakness. It reduced the forecast for the US by 0.5% points to 2%. For sputtering European Union locomotive Germany, it cut growth 0.5% points to 1.3%, compared to the German government’s forecast of 1.7%.

The cut for France was smaller at just 0.1% down to 1.2% — the Paris government’s forecast is 1.5%. The forecast for China was unchanged on the November assessment of 6.5%, while India enjoyed an upward revision of 0.1% to 7.4%.