OECD Warns World’s Largest Economies Will Slow

The Organization for Economic Co-operation and Development (OECD) has noted that growth will likely slow across many of the world’s largest economies, including the U.S. and China. The organization released its warning based on an analysis of information available from May 2015. The latest indicators show slowdowns that could lead to a disappointing year for the global economy.

The Organization for Economic Co-operation and Development (OECD) has noted that growth will likely slow across many of the world’s largest economies, including the U.S. and China. The organization released its warning based on an analysis of information available from May 2015. The latest indicators show slowdowns that could lead to a disappointing year for the global economy.

The warning comes the same day of a dramatic decline in Chinese stocks. The prediction and the news from China pose a challenge for central banks around the world, many of which have already provided significant amounts of stimulus funding in an effort to aid recovery from the last global recession in 2008. Most of the central banks would prefer to return to interest rates that are more ‘normal’ as soon as possible, but interest rates may remain lower than normal on this news.

Low interest rates and large amounts of outstanding stimulus money mean that another financial crisis could be utterly crippling to affected economies. The longer rates remain low and stimulus funds unpaid, the higher the risk from another financial crisis.

While the U.S. economy contracted slightly during the first three months of 2015, most economists and financial analysts have attributed this poor performance to an unusually long winter, labor disputes at West Coast shipping ports, and other temporary factors. However, the OECD has a somewhat more alarming interpretation of these figures. According to the OECD, a return to expansion in the second quarter and later will likely be less impressive than first predicted. According to the OECD, its leading indicator for the U.S. has fallen each month this year. At present, it stands at 99.5, while a level below 100.0 signals a slowdown. The number started at 100.0 at the beginning of the year.

The OECD designed its leading indicators to provide early signals of turning points between economic expansion and slowdown. The indicators include a wide variety of data that have historically indicated up or down trends in economic performance.

Relying on these indicators, the OECD suggests that economies that have grown faster than their peers, such as the U.S. and China, will slow. Meanwhile, slower performing nations, like France and Italy, appear poised to grow faster through the end of the year. Other potential upticks go to Japan, Germany, and Italy. Russia’s economy may be close to reaching rock bottom after a long period of slowdown and could reverse.

The OECD’s composite leading indicator, an amalgamated indicator analysis that includes all of its 34 members, dropped to 100.0 in May. That indicates global stagnation. The indicator was 100.1 in April, so the May figure represents an overall slowdown in the global economy.