The global economy improved in 2017 and will reach an eight-year high next year according to the Organisation for Economic Co-operation and Development. But needs private investment to sustain growth into 2019.
The organisation nudged up its estimate to 3.6 percent for this year from 3.5 percent in its last forecast to reach 3.7 percent in 2018.
Catherine Mann, OECD Chief Economist, says several factors contributed to the improved economy.
“First there has been a continued monetary policy accomodation,” she explains. “But perhaps some people don’t know that actually there is quite a bit of fiscal stimulus in the system and that is added to the growth. The third element is that trade has recovered and it’s moving along quite smartly right now.”
With its strongest growth in a decade, the euro area was also seen outpacing other major developed economies this year and was up on previous forecasts. The OECD forecasts growth of 2.4 percent for 2017 dropping to 2.1 percent in 2018.
“There is no question that 2017 is a much better year for the euro area,” says Mann. “What we would like to do is to ensure that the momentum that is in place right now continues through 2018 and 2019.”
But Brexit means Britain is missing out on global growth. The OECD’s 2017 growth forecast of 1.5 percent makes Britain the weakest economy in the G7.
‘Well there is uncertainty and there is a timetable for resolution of those uncertainties,” says Mann. “What we need to do is get to the position of a close economic relationship between the UK and the EU, that is better for both of them.”
UK Banks though seem to be ready for the worst case scenario. For the first time since the financial crisis, all of the UK’s biggest lenders have passed the Bank of England stress tests.
“Informed by the stress tests at our own risk analysis, the Financial Policy Committee also judges that the banking system can continue to support the real economy even in the unlikely event of a disorderly Brexit,” said Bank of England governor, Mark Carney.
But the OECD says high consumer debt coupled with stagnant household income is still a major financial stability risk in the UK.