OECD Cuts U.K. Growth Forecast on Brexit Woes

Despite continuing economic turbulence, some foreign financial organizations are starting to register improvements in Brazil’s economy. “For 2016, GDP growth has been supported by a strong performance prior to the referendum, even though business investment contracted”, the OECD said.

The OECD says developments to date are “broadly consistent” with moderate scenarios set out prior to the referendum.

“Global GDP growth is projected to slow marginally to 2.9% in 2016, lower than in 2015 remaining around the same 3% of recent years. Some of it has do to with individual country circumstances but of course the decision about Brexit in June, the referendum vote, is weighing heavily on our expectations for growth in the real economy in the euro area in 2017”.

OECD’s Chief Economist Catherine Mann delivers interim economic outlook, photo Michael Dean/OECD.

The British economy will grow by 1.0 percent in 2017, said the Organisation for Economic Cooperation and Development as it published revised forecasts.

It has also downgraded its world growth estimates for both 2016 and 2017 by 0.1 point, to 2.9% and 3.2% respectively.

The OECD’s current assessment contrasts with the comments made by its secretary general Angel Gurria in April when he said: “From the moment of a Brexit vote until the arrangements for “divorce” are definitively settled – years later there would be heightened economic uncertainty, with damaging consequences”.

The OECD said that exceptionally weak global trade and financial distortions due to record-low interest rates are exacerbating a trend to slower global economic growth.

High nonperforming loans in some euro area countries continue to hold back growth prospects and the significant slack in the labor market remains amid few signs of inflation and wage pressures, the report said.

The US annual growth forecasts, trimmed by 0.4 percentage points on June’s estimates to 1.4%, were looking especially weak, according to the OECD.

The global economy is caught in a rut, which low interest rates on their own are failing to break.

That leaves the United Kingdom central bank on track to cut interest rates again in November to slightly above zero. “The spiral is not upwards, it is downwards”. Poor growth outcomes combined with high inequality and stagnant incomes are further complicating the political environment, making it more hard to pursue policies that would support growth and promote inclusiveness, the report said. Low growth projections naturally weigh on analysts and internationally minded companies, who will be less ambitious with their trade goals as a result. Like many central bankers, the OECD also called for national governments to do more in the way of fiscal policy (taxation and spending) to boost growth.