(JNi.media) A further sharp downturn in emerging market economies and world trade has weakened global growth to around 2.9% this year – well below the long-run average – and is a source of uncertainty for near-term prospects, the Organization for Economic Cooperation and Development (OECD) said Monday. Emerging market challenges, weak trade and concerns about potential output suggest higher downside risks and vulnerabilities compared with the OECD’s June Outlook.
But in Israel, after a moderate pace in 2015, the OECD said economic growth is projected to pick up to around 3¼ per cent in 2016 and 2017. This increase in activity should keep unemployment low. A rise in the minimum wage, falling oil prices and budgetary measures to stimulate the economy will support domestic demand, while exports are likely to recover with the improvement in the global economy.
Presenting the Outlook in Paris, OECD Secretary-General Angel Gurría said: “The slowdown in global trade and the continuing weakness in investment are deeply concerning. Robust trade and investment and stronger global growth should go hand in hand. G-20 leaders meeting in Antalya need to renew their efforts to secure strong, sustainable and balanced growth.”
For the US, the expectation is that output remain on a solid growth trajectory, propelled by household demand. Steady employment gains continue to push down the unemployment rate and other indicators of labour market slack. Domestic demand will continue to be sustained by supportive financial conditions, the improving labour market and the boost to household purchasing power from low energy prices and the stronger dollar.
However, the boost from these influences should gradually subside, warns the OECD, and will be damped by weaker export growth due to sluggish external demand and the recent strengthening of the dollar.
In Israel, pursuing an accommodative monetary policy is appropriate to prevent an appreciation of the shekel, as long as inflation remains low and other major central banks maintain their expansionary stances. Property market tension poses a risk, however, and macro-prudential policy may need to be reinforced if necessary. The fiscal easing planned for 2016, including tax cuts and major spending increases, will make the medium-term public debt reduction objective more difficult to achieve. Stepping up structural reforms to strengthen competition in sheltered sectors would be beneficial to boost productivity and promote inclusive growth.
Israel’s commitment to reduce CO2 emissions per capita by 26% before 2030 is welcome, says the OECD, but could be more ambitious. Introducing a carbon tax would help to meet this objective in a growth-friendly way, and pursuing public rail transport development would also reduce the costs of urban congestion. The taxation of private cars should target their use rather than their ownership, and the tax breaks associated with company cars should be abolished.