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One of the world’s leading economic organisations has warned governments to ease up on austerity that may be crippling global growth.
The Paris-based Organisation for Economic Cooperation and Development has stressed in its latest report that countries must adopt a more balanced approach to spending to try and stop economic growth from stalling.
The latest figures show the UK economy is expected to grow by just by 2.1 per cent in 2016 and 2 per cent, 0.3 points less than it was thought at the end of last year.
The think tank said that low interest rates mean governments in many countries can borrow for long periods. This gives them room to increase spending in the economy by funding infrastructure projects or other initiatives that could strengthen demand.
“[Spending] should focus on policies with strong short-run benefits and that also contribute to long-term growth,” the OECD advised.
It added that spending on insfrastructure projects could make up “for the shortfall in investment following the cuts imposed across advanced countries in recent years”.
The arguments come after a UK think tank, the Institute for Fiscal Studies, warned George Osborne’s fiscal charter - a piece of Conservative law that requires him to run a budget surplus by the end of the decade - is a flawed way to manage the public's finances.
The IFS decried the charter for not allowing any productive Government spending, despite a “golden opportunity” for Osborne to invest in UK infrastructure through borrowing.
The UK is trailing behind global growth, which is forecast to grow 3 per cent in 2016, making it the weakest year for global activity for half a decade.
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"Global growth prospects have practically flat-lined, recent data have disappointed and indicators point to slower growth in major economies, despite the boost from low oil prices and low interest rates,” Catherine L. Mann, OECD chief economist, said.
“Given the significant downside risks posed by financial sector volatility and emerging market debt, a stronger collective policy approach is urgently needed.”
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