Global economic growth is expected to accelerate to 3.6 percent next year but there are many challenges ahead that could derail the forecast, according to a report from the Organization for Economic Cooperation and Development (OECD).
“Global GDP growth is projected to pick up modestly to around 3.5 percent in 2018, from just under 3 percent in 2016, boosted by fiscal initiatives in the major economies. “The forecast is broadly unchanged since November 2016,” the OECD said in its interim economic outlook.
The organization forecasts the world economy to expand at 3.3 percent in 2017.
However, the report warned: “Confidence has improved, but consumption, investment, trade and productivity are far from strong, with growth slow by past norms and higher inequality.”
It named “disconnect between financial markets and fundamentals, potential market volatility, financial vulnerabilities and policy uncertainties” as factors that could derail modest recovery in the global economy.
“The positive assessment reflected in market valuations appears disconnected from real economy prospects. The interest-rate cycle turned in mid-2016 and rising divergence in interest rates between major economies heightens risks of exchange rate volatility,” the report read. The GDP growth in the U.S. is expected to pick up to 2.4 percent in 2017 and 2.8 percent in 2018, thanks to “anticipated fiscal expansion, especially in 2018, despite higher long-term interest rates and continued headwinds from the stronger U.S. dollar.”
Euro Area — EU states that have adopted the euro as their currency — is forecasted to expand at a moderate pace of 1.6 percent, both in 2017 and next year as high non-performing loans ratios and worries for the health of labor market still persist in some Euro Area countries despite encouraging signs indicating a recovery in business investments.
Growth in China is expected to expand 6.5 percent in 2017, up 0.1 points from November Economic Outlook report and 6.3 percent by 2018 as the economy gets through a necessary process of transforming into a services and consumption-based economy from manufacturing-based one, according to the report.