The global economy is set to slow over coming months, with growth weakening in most developed economies even as it stabilizes in China, according to leading indicators released Tuesday by the Organization for Economic Cooperation and Development.
The Paris-based research body said its gauges of future economic activity—which are based on information available for January—continue to point to slowdowns in the U.S., the U.K., Canada and Russia, but now also suggest growth is set to ease in Germany and Brazil.
The leading indicators also point to stabilization in India and France, two countries that they had previously suggested were set for faster growth. Indeed, none of the big economies for which the OECD provides leading indicators is set for an acceleration. The one encouraging development was a further indication that growth in China, the world’s second-largest economy, is set to steady.
The leading indicators’ turn toward an even gloomier outlook for the global economy comes as little surprise after a difficult start to 2016, which saw financial markets tumble around the world on renewed concerns about growth prospects in China and elsewhere. But they do suggest that turmoil in financial markets may in itself have taken its toll on growth in 2016.
Policy makers have already begun to respond to weakened growth prospects. In late January, the Bank of Japan 8301 4.61 % set a key short-term interest rate below zero as part of a broader effort to reinvigorate a sputtering economy and sluggish inflation. Sweden’s Riksbank has lowered its key interest rate further into negative territory, and the European Central Bank is expected to do likewise when its policy makers meet Thursday.
But there are growing worries that central banks alone can do little to halt the global economy’s slide into weaker growth. In advance of a meeting of finance officials from the Group of 20 largest economies in Shanghai in late February, both the International Monetary Fund and the OECD called for a fresh approach to stimulus that relies more on a coordinated increase in investment spending and economic overhauls by governments. However, the G-20 showed little inclination to follow that advice.
In a speech in Washington, D.C. Tuesday, IMF first deputy managing director David Lipton repeated that call, saying that a protracted period of weak demand could put the global economy at risk of “secular stagnation” at a time when “the scope for monetary policy to boost domestic demand further is limited.”
“What is needed is a three-pronged approach through monetary and fiscal policies, as well as structural reforms to strengthen the baseline and guard against the risks,” he said.
The OECD’s leading indicators are designed to provide early signals of turning points between the expansion and slowdown of economic activity, and are based on a variety of data series that have a history of anticipating swings in future economic activity. The changes in economic activity signaled by the indicators usually follow six to nine months after they are recorded.
The OECD’s composite leading indicator for its 34 members fell to 99.6 from 99.7 in December. A reading below 100.0 points to growth that is slower than normal.
Write to Paul Hannon at [email protected]