New OECD Growth Forecast

November 27, 2012

The 92nd semi-annual Economic Outlook from the Organization of Economic Co-Operation and Development has revised world GDP growth next year downward to 3.4% from a prior forecast of 4.2%.  The growth estimate for calendar 2014 is 4.2%.  Among the 34 countries that are in the OECD, growth is projected to climb only 1.4% in calendar 2013 followed by 2.3% in 2014.  The OECD mostly comprises economies with an upscale standard of living.  Twenty-five of the member nations are from Europe.  Other members are the United States, Canada, Japan, Australia, New Zealand, South Korea, Turkey, Mexico, and Israel.

Projected U.S. growth averaging 2.7% per annum between the final quarters of 2012 and 2014 compares very favorably against the projected pace in the euro area of 1.2% per annum and that of Japan, which is forecast at just 0.9% per annum.  The U.S. growth advantage embodied in these projections is critically dependent on a successful negotiation by U.S. politicians of a package of revenue enhancements and spending cuts that averts the fiscal cliff.  That assumption thus far is highly faith-based.  Neither side has shown a serious willingness to compromise.  People drawn to politics tend to have stronger convictions than the average voter.  And for that sub-set of the population, compromise is a sign of shameful weakness.

As a group, OECD growth over the two years between the current quarter and 4Q14 is projected to average 2.2% per annum, about half as much as the assumed 4.1% annualized pace of global GDP growth.  If nothing is done to modify the approximate half trillion dollars of U.S. fiscal austerity set to happen in January if the impact of that baseline is modified only cosmetically, growth will be weaker than assumed in the OECD but also in the bloc of developing and emerging countries that do not belong to the OECD.  Because of the heavy weight of the U.S. economy within the OECD, the growth disparity between OECD and non-OECD nations will likely be discernibly wider than the new OECD forecasts imply if the fiscal cliff fails to be addressed properly.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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