OECD sees US growth accelerating up to 2015

Friday 13 June 2014 15.25
'The US is the bright spot in the world's recovery today', the OECD has said
'The US is the bright spot in the world's recovery today', the OECD has said

The US economic recovery should accelerate in coming months as an energy boom, steadily falling unemployment and a rebound in investment push growth to its fastest pace in a decade.

This is according to the Organisation for Economic Cooperation and Development today.

In its latest overview of the US economy, the Paris-based group said US gross domestic product would expand 2.5% this year, just below a forecast it released last month.

But it maintained its 3.5% growth projection for next year, which would be the strongest advance since 2004. 

The OECD is more optimistic on US growth than most private forecasters and some other international organisations, including the World Bank, which looks for growth in 2015 of only 3%. 

It said it saw several positive trends converging to make the recovery faster, more entrenched and more driven by private demand. 

Low energy prices and continued low borrowing costs, coupled with record corporate stores of cash, should produce a surge of 10% in business investment in 2015, the OECD projected ,while steadily falling unemployment would mean rising consumer demand and a firm recovery in housing over the next year. 

"The US is the bright spot in the world's recovery today," said OECD head Angel Gurria. 

"This has been building up," as the US worked through the aftermath of the crisis and recession and set the stage for domestic demand and investment to take off. "The US is the one country that has its own growth built in," he added. 

Notably, the OECD said that the steps taken to rein in federal spending and debt in recent years were succeeding. The drag on the economy from budget cuts has diminished, while federal debt as a percentage of GDP was stabilising at around 106% - high by world standards but perhaps set to decline.

The OECD, an economic policy organisation that includes the world's largest developed nations, did warn that some trends in labour markets could hurt the country's prospects. 

Despite stronger growth, the group forecast the unemployment rate would decline only slowly, remaining at 6% at the end of 2015 - still above the level typically regarded as full employment. The jobless rate stood at 6.3% in May. 

The continued stagnation of wages among middle and lower-income families has stunted demand and worsened income inequality, the OECD said. It called for tax law changes and an increase in the minimum wage to address the issue. 

Declining labour force participation also poses a problem which the OECD said could be addressed through reform of immigration laws, or employee tax and training programmes that encourage people to work. It recommended specifically a broadening of the earned income tax credit. 

The OECD said the United States should also cut its 39.1% corporate tax rate, the highest among OECD countries, and reform the system to broaden the base of corporations paying taxes and to give businesses less incentive to book profits abroad. 

Meanwhile, new figures today show that US producer prices dipped in May after two months of gains in a row, as demand for services and goods weakened. The US Labor Department said its producer price index fell 0.2% in May after surging 0.6% in April and 0.5% in March.

Stripping out food and energy prices, core PPI was down 0.1% in May. The fall in the PPI was unexpected. The consensus estimate was for a 0.2% rise increase in PPI and for core PPI to tick 0.1% higher. 

The department said the drop was due to 0.2% decreases in both final demand services and final demand goods. A 0.9% fall in petrol prices accounted for roughly half of the decline in the final demand goods prices. 

May producer prices were up 2% from a year ago. Producer inflation has been inching up as the economy gradually recovers from the severe 2008-2009 recession. 

Consumer inflation remains subdued, well below the Federal Reserve's target of 2% on its preferred measure, the personal consumption expenditures price index. The PCE inflation rate stood at an annualised 1.6% in April.

Keywords: oecd, us economy