World economy will grow slower than expected: an 'urgent' problem, OECD says

The U.S. and global economies will grow at a slower pace this year than initially estimated, requiring an "urgent" response from policymakers, the Organization for Economic Cooperation and Development said Thursday.

The group, composed of the world's 34 most advanced economies, said recent financial market volatility and debt in emerging markets increased the risks to global growth.

That called for "greater use of fiscal and pro-growth" efforts as well as continued low interest rates from the Federal Reserve and other central banks.

“Global growth prospects have practically flat-lined, recent data have disappointed and indicators point to slower growth in major economies, despite the boost from low oil prices and low interest rates,” said Catherine L. Mann, OECD's chief economist.

The world economy is expected to expand 3% this year, the same as in 2015 and 0.3 percentage points less than forecast in November, the group said.

U.S. economic growth will slow this year to 2%, down from 2.4% last year. In November, the OECD forecast called for the U.S. economy to expand 2.5% this year.

The U.S. recovery still has momentum from an improving job market. But that boost will "inevitably fade" as the nation approaches full employment unless there are stronger wage gains to keep consumers spending, the OECD said.

Economic growth in the U.S. slowed at the end of last year because the strong dollar hurt exports and low oil prices hit the nation's energy sector, the report said.

Those headwinds should ease this year, but "with export markets on course for sluggish growth, business investment remaining mediocre, and few signs of upward pressure on real wages, there is little sign that other sources of demand will reinforce" U.S. economic growth, the OECD said.

The group's downgrade came after the International Monetary Fund cut its global growth forecast last month. The IMF said the world economy would expand 3.4% this year.

The OECD is less optimistic about the prospects for 2016.

The eurozone continues to struggle, with growth this year expected to be 1.4%, the group said. That is lower than last year's weak 1.5% and 0.4 percentage point lower than the November estimate.

China's economy also will slow, to 6.5% this year from 6.9% last year. The 2016 forecast is the same as in November, with the OECD anticipating China's efforts to shift its economic engine to domestic consumption would slow growth.

Many emerging market economies are struggling amid reduced demand for oil and other commodities from China. The OECD said Brazil's recession would deepen this year, with its economy contracting 4% after shrinking 3.8% last year.

Despite the Fed's move in December to nudge up its benchmark interest rate from an unprecedented near zero level, monetary policy in the U.S. and worldwide remained stimulative, the OECD said.

Fed Chairwoman Janet L. Yellen said last week that anticipated small rate hikes this year could be delayed because of the global uncertainty.

But "reliance on monetary policy alone has been insufficient to deliver satisfactory growth" to the world economy, the OECD said. The group called for more spending by governments to help stimulate growth.

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