OECD warns storm clouds gathering for global economy

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Thinktank says easy money is building up fresh financial stability risks and urges governments to do more to shore up recovery

Abnormally low inflation and interest rates are building up new risks for the global economy, a leading thinktank warned on Wednesday, as it called on governments to play a greater role in shoring up the recovery.

The Organisation for Economic Cooperation and Development says in its latest economic health check that low oil prices and loose monetary policy are boosting growth in the world’s big economies, but that the near-term pace of expansion remains modest.

Lower oil prices and widespread monetary easing have brought the world economy to a turning point, with the potential for the acceleration of growth that has been needed in many countries,” said OECD chief economist Catherine Mann.

“There is no room for complacency, however, as excessive reliance on monetary policy alone is building up financial risks, while not yet reviving business investment. 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.”

In Japan, monetary and fiscal stimulus provide the impetus for faster near-term growth, but longer-term challenges remain. A gradual slowdown in China, towards the new official growth target, is expected to continue. India is expected to be the fastest-growing major economy over the coming two years, while the outlook is likely to worsen for many commodity exporting nations, with Brazil falling into recession.”

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