The Organisation for Economic Co-operation and Development (OECD) has said that an elusive global growth outlook requires an urgent policy response, including increased investment in infrastructure.

Achieving strong growth in the global economy remains elusive, with only a modest recovery in advanced economies and slower activity in emerging markets, according to the OECD’s latest Interim Economic Outlook.

 The world economy is likely to expand no faster in 2016 than in 2015, its slowest pace in five years. Trade and investment are weak, while sluggish demand is leading to low inflation and inadequate wage and employment growth.

 The downgrade in the global outlook since the previous Economic Outlook in November 2015 is broadly based, spread across both advanced and major emerging economies, with the largest impacts expected in the United States, the euro area and economies reliant on commodity exports, like Brazil and Canada.

 The OECD warns that financial instability risks are substantial, as demonstrated by recent falls in equity and bond prices worldwide, and increasing vulnerability of some emerging economies to volatile capital flows and the effects of high domestic debt.

The OECD projects that the global economy will grow by 3 percent this year and 3.3 percent in 2017 - well below long-run averages of around 3¾ percent.  This is also lower than would be expected during a recovery phase for advanced economies, and given the pace of growth that could be achieved by emerging economies in convergence mode.

The US will grow by 2 percent this year and by 2.2 percent in 2017, while the UK is projected to grow at 2.1 percent in 2016 and 2 percent in 2017. The euro area is projected to grow at a 1.4 percent rate in 2016 and a 1.7 percent pace in 2017. Germany is forecast to grow by 1.3 percent in 2016 and 1.7 percent in 2017, France by 1.2 percent in 2016 and 1.5 percent in 2017, while Italy will see a 1 percent rate in 2016 and 1.4 percent rate in 2017.

 The OECD is calling for a stronger policy response, changing the policy mix to confront the current weak growth more effectively.

The Interim Economic Outlook suggests that a stronger fiscal policy response, combined with renewed structural reforms, is needed to support growth and provide a more favourable environment for productivity-enhancing innovation and change, particularly in Europe.

 OECD Chief Economist Catherine L. Mann commented:

“With governments in many countries currently able to borrow for long periods at very low interest rates, there is room for fiscal expansion to strengthen demand in a manner consistent with fiscal sustainability.”

“The focus should be on policies with strong short-run benefits and that also contribute to long-term growth. A commitment to raising public investment would boost demand and help support future growth.”

The Outlook says a commitment to raising public investment collectively would boost demand while remaining on a fiscally sustainable path. Investment spending has a high-multiplier, while quality infrastructure projects would help to support future growth, making up for the shortfall in investment following the cuts imposed across advanced countries in recent years.

The effects would be enhanced by, and need to be undertaken in conjunction with, structural reforms that would allow the private sector to benefit from the additional infrastructure; notably in the Europe Union, where cross-border regulatory barriers are a significant obstacle.

Commenting on today’s call by the OECD for greater investment in infrastructure to spur global economic growth, Chief Executive of the Civil Engineering Contractors Association (CECA) Alasdair Reisner said:

 “CECA’s research has demonstrated that the best policy lever available to governments to spur growth in the economy is infrastructure investment.”

 “In the long term, every £1 billion of infrastructure construction in the UK increases overall economic activity by £2.842 billion. We would expect this multiplier to be replicated in other economies.

 “Investment in infrastructure is not only a matter of spurring growth in the short term, but about laying the foundations for future growth, thereby securing a sustainable recovery.”