The OECD has released a critical report on the United States, arguing that the uncertain fiscal and central bank policies could pose major risks for the global economy. The OECD often takes a relatively neutered approach when criticizing its member states, however, in the twice-yearly economic outlook report, the organization had strong words for America.
U.S debt problems
Drawing particular ire was the recent shenanigans surrounding the debt ceiling and the U.S. government shutdown. The OECD has urged the United States to do away with the debt ceiling altogether and for the Democrats and Republicans to come to a political agreement on how to resolve America’s debt problems. If not, the continued infighting could undermine confidence in the American government.
With Republicans and Democrats set for yet another debt showdown in the early months of 2014, global markets may once again be rattled by U.S. domestic issues. The OECD and other organizations have noted that this continued fighting is worrying investors worldwide and could impact economies across the globe.
OECD remains concerned about Europe
This report also marks a change in focus from previous reports, which largely focused on the European Union. The OECD remains concerned about Europe’s ongoing problems, but believes the biggest threats at the moment lie in the United States. While the world’s largest economy has been posting solid economic growth in the last few months, unemployment remains high and Washington is fractured.
This shift to the United States comes even though the OECD expects Eurozone to shrink by projected 1.4% in 2013. In 2014, the OECD believes that the Eurozone’s economy could grow by 1%. While this growth will be too slow to alleviate the ongoing fiscal and economic problems in Europe, it will be a far cry from the near free fall the region suffered through only a few short years ago.
Global economic growth projection
The OECD projects global economic growth to weigh in at about 2.7% in 2014, a .5% downgrade from previous projections. Larger economies across the globe will be especially vulnerable to the wind down of the United States’ quantitative easing programs, which have fueled cheap credit and fast lending around the world. When the United States winds down its Q.E. program, liquidity around the world could dry up and exchange rates could fluctuate wildly as markets readjust.
While the OECD has warned about the coming turbulence that will be created by the ending of the Q.E. program, it has recommended that the U.S. go forward with it anyways, assuming that unemployment continues to drop and the economy continues to grow. The OECD argues that the costs of tapering will only continue to rise, and that tapering has to begin at some point.