OECD calls for more investment in quality infrastructure

OECD chief economist Catherine Mann delivering the organisation's interim economic outlook.

The OECD has called for its richer-country members to tone down austerity and spend more on quality infrastructure projects to boost flagging growth.

Delivering the OECD’s interim economic outlook on 18 February 2016, the organisation’s chief economist Catherine Mann said that stronger growth remained elusive and an urgent policy response was needed to address the situation.  Weak trade, weak investment, declining commodity prices, low inflation and poor wage growth was dragging back growth and a collective response focusing on investment-led spending was urgently required.

Richer countries should take advantage of cheap borrowing to spend more on infrastructure, Mann said as she announced a downgrading of the OECD’s growth forecasts made three months ago. “Low interest rates and money creation by central banks were no longer enough for a lasting recovery,” she said and urged countries to adopt a more balanced growth strategy which included “quality investment-led spending on infrastructure”.

Countries should adopt a more balanced growth strategy which included quality investment-led spending on infrastructure, said the OECD's chief economist Catherine Mann.

“Given the significant downside risks posed by financial sector volatility and emerging market debt, a stronger collective policy approach is urgently needed, focusing on a greater use of fiscal and pro-growth structural policies, to strengthen growth and reduce financial risks,” said Mann. “With governments in many countries currently able to borrow for long periods at very low interest rates, there is room for fiscal expansion to strengthen demand in a manner consistent with fiscal sustainability.”

These latest calls by the OECD for Britain to join other countries in spending more on public investment will be a boost to recent calls made by many in the construction sector in the UK for government to increase its spending on infrastructure.

The OECD said that with growth prospects worsening in the past three months for every member of the G7 group of leading industrial nations - the US, the UK, Germany, Japan, Italy, France and Canada - solutions led by monetary policy alone were no longer sufficient.

Shadow chancellor John McDonnell welcomed the OECD’s comments. “The OECD are correct to advise, as Labour has been arguing for months, that we need to increase investment. The time is right to invest now in our future in much-needed infrastructure, so that we avoid paying more at a later date for missing this opportunity,” he said.

The OECD reduced its 2016 global growth forecast by 0.3 points to 3%, leaving it unchanged from 2015 which was the weakest year for global activity in five years. It also cut 0.3 points off its 2017 forecast, reducing it to 3.3%.

Quality infrastructure spending made economic sense according to the OECD as it had a high multiplier effect, with strong knock-on effects on overall growth rates. Such spending, said  Mann, would support future growth making up for “the shortfall in investment following the cuts imposed across advanced countries in recent years.”

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