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World caught in low-growth trap: OECD

AAP logoAAP 21/09/2016 Colin Brinsden, AAP Economics Correspondent

The global economy is caught in a rut, which low interest rates on their own are failing to break.

That's the view of the Organisation for Economic Co-operation and Development, which has made a further modest downgrade to its world growth forecasts for this year and next.

"The world economy remains in a low-growth trap," the OECD says in its interim Economic Outlook released on Wednesday.

Persistent poor growth expectations are depressing trade, investment, productivity and wages, which in turn is leading to a further downward revision in growth expectations and subdued demand.

The Paris-based institution now expects global growth of 2.9 per cent in 2016 and 3.2 per cent in 2017, both down 0.1 percentage point from its forecast made in June.

However, it notes a gradual improvement in major emerging market commodity producers is helping to offset weaker conditions in advanced economies, including from the effects of Brexit.

It believes monetary policy has become "overburdened" which is creating distortions in financial markets.

Governments should be taking advantage of the low interest rate environment to increase growth-enhancing spending.

"All countries have room to restructure their spending and tax policies towards a more growth-friendly mix by increasing hard and soft infrastructure spending, and using fiscal measures to support structural reforms," the OECD says.

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