OECD upgrades world growth outlook

Tax cuts in the US have upgraded forecasts for world economic growth.
Tax cuts in the US have upgraded forecasts for world economic growth.

Growth in the global economy could be brushing a four per cent pace over this year and next, providing a positive outlook for Australia's exporters.

In its interim economic outlook, the Organisation for Economic Co-operation and Development has upgraded its world growth forecast from predictions made in November, including a lift in its expectations for Australia.

The OECD now sees world growth of 3.9 per cent for both 2018 and 2019 after an estimated 3.7 per cent expansion in 2017, the strongest outcome since 2011.

The Paris-based institution said key factors behind its upward revisions reflect tax reductions and public spending increases in the US announced over the past three months and a substantially easier fiscal stance by Germany.

This resulted in respective percentage point upgrades of 0.2 and 0.3 for this year and next from the OECD's previous forecasts.

It raised Australian growth by the same margins to three per cent over the two years after the national accounts showed growth of just 2.4 per cent last week.

Stronger world growth has been accompanied by solid job creation with the OECD-wide unemployment rate having finally fallen below its pre-global financial crisis level.

"Despite steady declines in unemployment, wage growth generally remains weak," it said in the outlook released on Tuesday.

However, there are signs that wage growth has begun to pick up in the US, Germany and Canada where measures of unemployment are at, or below, longer-term norms.

It expects ongoing improvements in business investment in the major economies should be reflected in stronger global trade growth.

"Prospects for investment are also somewhat stronger than previously expected in commodity-producing economies, reflecting the higher level of global commodity prices," it says.

But the OECD also warns trade protectionism remains a key risk to the outlook because it would negatively affect confidence, investment and jobs.

"Governments of steel-producing economies should avoid escalation," it said in reference to US President Donald Trump's plan to impose tariffs on steel and aluminium imports.

Australian Associated Press