The Organization for Economic Cooperation and Development said growth prospects in the major economies look slightly better than its previous assessment in November and called for a balanced policy to ensure sustainable growth.
In the Interim Economic Assessment, the Paris-based think tank said Wednesday that the near-term outlook remains for moderate, rather than rapid, world economic growth.
Against the backdrop of somewhat better growth prospects, abnormally low inflation and interest rates create a growing risk of financial instability with risk-taking and leverage driven by liquidity rather than fundamentals.
Moreover, projected growth rates remain too low to fully repair and activate labor markets, the think tank said.
“A more balanced policy approach is needed, making full use of fiscal and structural reforms, as well as monetary policy, to ensure sustainable growth and public finances over the longer term,” OECD Chief Economist Catherine Mann said.
The think tank projected the U.S. economic growth to be at 3.1 percent this year and to be 3 percent in 2016. The forecasts for both 2015 and 2016 were left unrevised.
Lower oil prices boosted global demand and created an environment for many central banks to lower their interest rates. The OECD observed that the bold actions by the European Central Bank raised asset prices in the currency bloc and added to easier global financial conditions.
According to the OECD, the favorable tailwinds create an opportunity for the euro area and Japan to get back to somewhat stronger growth rates, and on balance the most recent indicators are encouraging.
Japan is projected to grow by 1 percent in 2015, faster than the prior estimate of 0.8 percent. In 2016, it is expected to expand 1.4 percent compared to the 1 percent projected in November.
Likewise, estimates for euro area were raised by 0.3 percentage points from the prior projections made in November. The 19-nation bloc is estimated to expand 1.4 percent in 2015 and by 2 percent in 2016.
Growth prospects differ widely among the major euro area economies, it said. Germany is forecast to grow by 1.7 percent in 2015 and by 2.2 percent in 2016 and France by 1.1 percent in 2015 and 1.7 percent in 2016.
Italy is expected to grow 0.6 percent in 2015 and 1.3 percent in 2016. The UK is projected to grow 2.6 percent in 2015 and 2.5 percent in 2016.
Over the next two years India is set to grow faster than China, where growth is slowing towards the official target.
China, the second largest economy, is expected to grow by about 7 percent in 2015. The estimate for 2015 was revised down from 7.1 percent, while that for 2016 was left unchanged at 6.9 percent.
India will grow by 7.7 percent in 2015 and by 8 percent in 2016, the OECD said. The figures were revised up from 6.4 percent and 6.6 percent, respectively.
The aggregate growth that represents over 70 percent of global GDP is estimated to grow 4 percent, instead of 3.9 percent and that for 2016 was raised to 4.3 percent from 4.1 percent.
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