OECD trims growth outlook but urges Fed action this week

Wed Sep 16, 2015 5:05am EDT
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By Leigh Thomas

PARIS (Reuters) - The global economic outlook has grown darker than it was only a few months ago, but the United States is doing well enough that its central bank should go ahead with its first rate increase since the financial crisis, the OECD said on Wednesday.

The world economy is set to grow 3.0 percent this year and 3.6 percent next year, the Paris-based Organisation for Economic Cooperation and Development said in an update of its forecasts for major economies.

It trimmed its estimates from 3.1 percent and 3.8 percent in June, citing primarily a slowdown in emerging market economies like China and Brazil.

"Global growth prospects have weakened slightly and become less clear in recent months," OECD chief economist Catherine Mann told Reuters in an interview.

The United States stood out as a bright spot. The OECD raised its growth outlook for this year to 2.4 percent from 2.0 in June. It lowered its 2016 forecast to 2.6 from 2.8 percent previously, though.

The OECD saw more arguments in favor of the Federal Reserve raising interest rates than standing pat when its policymakers meet this week rather than at their next meeting at the end of the year.

"Raising interest rates now would remove uncertainty in the markets," Mann said. The pace of future increases was more important than whether the Fed acted now or in December, according to the OECD's simulations, she said: "The path matters four times as much as the timing."

Looking at the euro zone, its outlook was the brightest in four years. Its growth was projected at 1.6 percent this year and 1.9 percent next year.   Continued...

The Federal Reserve building in Washington September 1,  2015.  REUTERS/Kevin Lamarque