OECD: There are 4 big risks facing the world economy

pulse

March 7, 2017 9:01 PM

"The world economy will witness modest growth in the next few years but one that could be derailed by financial and policy instability."

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The world economy will witness modest growth in the next few years but it could be derailed by financial and policy instability, according to the Organisation for Economic Cooperation and Development.

"Global GDP growth is projected to increase, rising from just under 3% in 2016 – the slowest pace since 2009 – to 3.3% in 2017 and around 3½ percent in 2018," the OECD said in its interim economic outlook, released on Tuesday.

However, the "disconnect between financial markets and fundamentals, potential market volatility, financial vulnerabilities and policy uncertainties," could derail growth, it warned.

The organization went on to explain each of these risks further.

Shaky fundamentals

"Equity valuations have increased significantly further in many major markets over the past six months, despite the large rise in nominal interest rates and with long-term nominal and real GDP growth expectations based on consensus forecasts barely changed," it stated.

The S&P 500 has rallied more than 8% since September but has recently begun to flash some warning signs. Declining volumes, a mismatch between volatility expectations and economic uncertainty, and a flattening yield curve are among the signs the stock market rally could be nearing an end.

It is worth noting that OECD's projected growth outlook is still below pre-crisis levels. "While the modest pick-up is welcome, it would still leave global GDP growth below the historical average of around 4% in the two decades prior to the crisis," the OECD said.

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