The loss of economic momentum in some emerging market economies (EME) is affecting global growth, the Organization for Economic Co-operation and Development has warned, despite strengthening recoveries in most developed economies.
FILE - In this Tuesday, March 4, 2014, file photo, Trader Glenn Kessler, left, works on the floor of the New York Stock Exchange. A sense of relief over the easing of tensions between Russia and Ukraine lifted Asian stocks Wednesday March 5, 2014, but failed to sustain gains for European markets which were boosted the day before (AP)
In its Interim Economic Assessment, published Tuesday, the organization said that "transitory factors" had led to an uneven growth picture in several cases, with emerging economies of particular concern.
"Given that emerging economies now account for over half the world economy, continued sub-par economic performance for several of the major EMEs is likely to mean that global growth remains only moderate in the near term," it said.
Across the G7 group of leading industrialized nations, the OECD expects gross domestic product (GDP) growth to expand from 2 percent at the end of 2013, to 2.2 percent in the first quarter of 2014, before falling back to 2 percent in the second three months of the year.
The organization added that although a number of risks had diminished – such as political wrangling over the U.S. debt ceiling and the outlook for Europe's banking sector – some long-standing risks remain.
"Japan is only just beginning to confront its daunting fiscal challenges, fragilities in the euro area are still acute, and the possibility persists of a sharp slowdown in China driven by balance sheet effects," it said.
"In addition, the adjustment of monetary policy in advanced economies as the cycle progresses continues to pose a risk to stability in some emerging economies, and crises there could spread and in turn exert a drag on growth in advanced economies."
Emerging Markets
Emerging market economies took a battering in January amid ongoing concerns about political upheaval, slowing growth and U.S. monetary policy, prompting some central bankers and policymakers to scramble for a response.
Turkey, South Africa, Brazil and India all tightened monetary policy in an effort to stem a reversal in capital inflows – which had boomed since the U.S. Federal Reserve started its bond-buying program in 2008. The Fed announced that it would begin tapering off its stimulus in December 2013.
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The OECD's Composite Leading Indicators showed a downward trend for BRIICS (Brazil, Russia, India, Indonesia and China) excluding China, signaling a cyclical slowdown.
Growth in emerging market economies could be hit as the U.S. continues to scale back its asset purchases, and as investors focus on their vulnerabilities, the OECD said, adding that high levels of debt left some vulnerable to financial shocks.
"There remains a risk that the financial market volatility and strong capital outflows in recent months in some emerging economies could again intensify, exerting an additional drag on growth," it added.
Developed economies
By contrast, the OECD's Composite Leading Indicators show a strengthening growth momentum in the U.S., euro zone, Japan and the U.K.
The U.S.'s cyclical recovery was "relatively well established," according to the OECD, but it warned that growth looked set to slow as a result of the recent bad weather.
The organization forecast annualized gross domestic product (GDP) of 1.7 percent in the first three months of 2014 and 3.1 percent in the second quarter, after the U.S. government slashed estimates for fourth-quarter GDP to 2.4 percent.
Both the U.S. and Canada were expected to experience an "uneven pattern of growth in the near term, owing in part to the disruptive effect of repeated episodes of severe winter weather," the OECD added.
Meanwhile, the organization forecast the U.K.'s economic growth to expand from 2.9 percent in the final quarter of 2013, to 3.3 percent in both the first and second quarter or this year.
It expects the euro zone's economy to continue to expand (by 1.9 percent in the first quarter of 2014, before slowing to 1.4 percent in the second quarter) but warned the pace of growth was slower than elsewhere.
"While activity in the euro area appears to be improving, so far it is doing so later and at a slower pace than in the other major economies," the OECD said. "Notably, while unemployment has been falling elsewhere, it has remained flat at stubbornly high levels in the euro area."
The organization also expressed concerns about the low level of inflation in the region, which came in at 0.8 percent in February – significantly below the European Central Bank's target of "close to 2 percent."
While in Japan, the OECD noted that the country "appeared finally to be exiting from deflation" and that Abenomics had caused a "welcome rebound" in GDP.
But it stressed there were some challenges ahead for the economy, which it expects to grow by a massive 4.8 percent in the first quarter of 2014, before slowing over the following three months.
"Japan is only just beginning to confront its daunting fiscal challenges, fragilities in the euro area are still acute, and the possibility persists of a sharp slowdown in China driven by balance sheet effects," the OECD said.
"In addition, the adjustment of monetary policy in advanced economies as the cycle progresses continues to pose a risk to stability in some emerging economies, and crises there could spread and in turn exert a drag on growth in advanced economies."
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