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The WSJ reports,"In its twice-yearly Economic Outlook report, the Paris-based research body once again lowered its forecast for global economic growth, since it now expects a number of large developing economies to be more sluggish than it anticipated when it last published projections in November.
The OECD said the global economy is in a less perilous state than it has been in recent years, and that policy makers "can now switch from avoiding disaster to fostering a stronger and more resilient recovery."
But it added that growth is still more likely to be weaker than forecast, and faces a number of potential impediments, ranging from the impact on developing economies of a normalization of U.S. monetary policy, to instability in China's financial system and the relatively new danger posed by rising tensions between Russia, the U.S. and theEuropean Union over the future of Ukraine.
The research body raised its growth forecast for the euro zone, but warned there is a risk that it will slip into deflation—or a period of self-reinforcing price declines—unless the ECB acts swiftly".
In unusually direct language, the OECD said the ECB's main refinancing rate "should be reduced to zero" from 0.25% now, while policy makers should "possibly" cut the deposit rate "to a slightly negative level." The research body said interest rates should not be raised from those levels until the end of 2015 at the earliest.
"In particular, we call on the European Central Bank to take new policy actions to move inflation more decisively toward target and to be ready for additional nonconventional stimulus if inflation were to show no clear sign of returning there," said Rintaro Tamaki, the OECD's acting chief economist. He noted that new, longer-term funding for banks and purchases of government and company bonds known as quantitative easing may be necessary.
The OECD's advice to the ECB comes two days before its governing council meets in Frankfurt, with most economists expecting policy to be left unchanged following a rise in the inflation rate to 0.7% in April from 0.5% in March.
ECB President Mario Draghi made it clear he didn't welcome similar advice from the International Monetary Fund days before the governing council met in April, but the OECD's acting chief economist said the research body had no other option.
"Our duty is to provide member countries with advice on better policy," said Mr. Tamaki. "This is inevitable."
Source: WSJ
Source: WSJ
