Paris-based Organisation for Economic Co-operation and Development raised its forecast for global growth in its latest report, as this year’s economic recovery continues, but warns of risks.
Growth estimates for 2017 and 2018 were raised to 3.5% and 3.6%, respectively, up from earlier estimates of 3.3% and 3.6%.
“The mood in the global economy has brightened during the last year. Confidence indicators, industrial production, headline measures of employment, and cross-border trade flows have improved in most economies. However, this still-modest cyclical expansion is not yet robust enough to yield a durable improvement in potential output or to reduce persistent inequalities…
Financial vulnerabilities continue to cloud the projections. Geopolitical shocks and trade protectionism could catalyse snap-backs in asset prices and realise downside risks through a variety of channels. Global equity prices have increased, reaching historic highs in the United States and Germany, despite little upward revision to GDP growth and inflation…
Around $12 trillion of OECD countries’ government bonds (32% of the total stock) continue to trade at negative yields. Big corrections in various asset prices would weigh on economic activity via wealth effects (more pervasive in advanced economies), via weak financial conditions of some firms and banks (currently reflected in high non-performing loans, especially in Europe), and via the mismatch of currencies and maturities of assets and liabilities (of particular relevance for some emerging market economies).