MercoPress. South Atlantic News Agency

US 'budget-debt ceiling' political clashes threaten slower world growth, warns OECD

”Gurria: The recovery is real, but at a slow speed, and there may be turbulence on the horizon”

The Organization for Economic Cooperation and Development, OECD, cut its forecast for global economic growth through next year and warned that fiscal and monetary policy decisions looming in the U.S. could derail the recovery. OECD said world economic output would expand 2.7% this year and 3.6% in 2014, down from May's forecast of 3.1% and 4%.

 “The recovery is real, but at a slow speed, and there may be turbulence on the horizon,” said Angel Gurría, OECD secretary-general. “There is a risk of another bout of brinkmanship in the U.S., and there is also a risk that tapering of asset purchases by the US Federal Reserve could bring a renewed bout of instability.“

The standoff in Washington over federal spending and the debt limit led to a 16-day partial federal government shutdown in October and brought the US near a potential default. A last-minute deal put off the next fiscal fight until early next year, with a short-term spending bill set to expire Jan. 15 and the debt limit extended to Feb. 7.

On top of that, world financial officials are watching to see when the Fed will decide to start tapering off its 85 billion in monthly bond-buying. Fed officials have indicated that the reductions could come soon. The change could lead to higher interest rates that would drain investment from emerging markets.

Gurria said the ”exit from non-conventional monetary policy will be challenging.“ He echoed concerns raised by Christine Lagarde, managing director of the International Monetary Fund, that the Fed needs to be careful in its tapering to avoid damaging the world economy.

OECD chief said the ”potential downside risks“ include not only the ongoing ”fiscal brinkmanship“ in the United States but also unresolved banking problems in Europe's 17-nation Euro-bloc, high debt in Japan and slowing growth in the world's emerging economies.

”Why is it that the world economy is not doing better or that the OECD part of the world economy is not doing better? Well, because all the cylinders are at half speed or less,“ he said. ”We can't get it out of first gear. No surprises here. A legacy of the crisis and the traditional sources of growth going slow.“

The OECD, which is composed of the world's 34 most advanced economies, said growth in its member countries would be 1.2% this year and 2.3% in 2014, the same as forecast in May. The 17-nation Euro-zone, emerging from its longest recession, will ”witness a gradual recovery,” the OECD said.

The latest forecast for that region is a contraction of 0.4% in economic output this year and growth of 1% in 2014. In May, the OECD projected the Euro-zone would contract 0.6% this year and rebound to 1.1% growth in 2014.

Aside from China, projections for most emerging markets also are down. But growth in some of those nations, such as Chile, Turkey, Mexico, Korea and Israel, still will outperform advanced economies, the OECD said.