OECD Secretary-General Angel Gurria addresses members of the organisation at its headquarters in Paris. Setbacks for emerging markets and rising risks of fallout from the Ukraine crisis are holding back the global economic recovery, the OECD said yesterday.

Reuters/Paris

Advanced economies will increasingly have to drive the recovery as formerly fast-growing developing economies falter, the OECD said yesterday, as it downgraded its outlook for growth.

The world economy is set to grow 3.4% this year before accelerating to 3.9% next year, the Paris-based Organisation for Economic Co-operation and Development said.

In its latest Economic Outlook, the OECD cut its estimate from 3.6% the last time it took the temperature of global growth, in November.

“We are still not out of the woods yet, because what we are seeing is better numbers, but the downside risks are still there,” OECD secretary-general Angel Gurria told Reuters Insider television. “Low growth is still there, very high unemployment numbers are still there.”

In addition, emerging-market economies such as China and Russia are becoming a drag on the global economy, though they should not derail the recovery that they had been driving until recently, Gurria said.

The OECD forecast that the US economy, the world’s biggest, would grow 2.6% this year. That was down from its forecast of 2.9% in November, after bad weather caused a rough start to the year.

Long a laggard in the global economy, the euro area was expected to grow 1.2% this year, marginally better than the 1% the OECD had projected in November.

The improved outlook put the euro zone on par with Japan, which was also expected to grow 1.2% this year. That was a downgrade from the previous forecast of 1.5%, after an increase in value-added tax.

Against that backdrop, the OECD encouraged the Bank of Japan not to let up on its unprecedented asset-purchase programme, to help underpin what it called a virtuous cycle of rising prices, wages and corporate earnings.

However, it warned that Japan could not put off reining in its public finances, which the OECD said could cause a run-up in long-term interest rates.

Among major advanced economies, strong growth was forecast for Britain, where growth was estimated at 3.2% this year as household spending and business investment pick up. That was an upgrade from 2.4% in November.

Outside of the 34-nation OECD, China’s economy was seen growing 7.4% this year, down sharply from an earlier 8.2% forecast, as a building boom cools and lending conditions tighten.

Among the weakest emerging market, Russia’s economy was forecast eking out growth of only 0.5%. It will have to contend with quickly evaporating confidence and financial-market volatility caused by its stand-off with the West over Ukraine.

The OECD urged the European Central Bank to take action now to ward off the threat of deflation, a pernicious downward spiral in prices which undermines consumer and business confidence.

It called on the ECB to cut its main interest rate to zero at least until the end of 2015 and recommended it also push its deposit rate into negative territory. That would mean the ECB would effectively charge risk-shy banks to park spare cash with it overnight.

The OECD said even more radical action may be needed if eurozone inflation, which stood at 0.7% in April, still did not return to the ECB’s target of close to but less than 2%. Such measures could include purchases of financial assets, similar to those by the Federal Reserve in the US

With the US recovery more entrenched, the OECD recommended that the Federal Reserve wrap up its asset purchases this year and start raising interest rates next year.

Switzerland, Singapore join clampdown on bank secrecy

Switzerland and Singapore joined yesterday the growing ranks of countries agreeing to share tax information in a major breakthrough against banking secrecy, the OECD said.

Under the pledge signed by a total 47 countries, financial information will automatically be shared on an annual basis between governments, including taxpayers’ bank balances, dividends, interest income and sales proceeds used to calculate capital gains tax.

“It’s clearly the end of bank secrecy abused for tax purposes,” Pascal Saint-Amans, tax director at the Organisation for Economic Cooperation and Development, told journalists at a meeting held by the international think-tank in Paris.

“It means that governments can really assess the tax owed by people who thought they could hide in other jurisdictions.”

While most of the signatories had already committed to sharing tax information on an automatic basis, the fact that Switzerland and Singapore have now also signed up is a big step in a fight against tax evasion that governments have intensified since the global financial crisis.

Facing mounting pressure to dismantle a cherished culture of banking secrecy, some of Switzerland’s 300-plus private banks had already signalled last year their readiness to work with US officials to crack down on wealthy Americans.

Switzerland is still the world’s biggest offshore financial centre with $2tn in assets. But Singapore is breathing down its neck and a 2013 study showed finance professionals see it soon overtaking the Alpine nation amid a global tax crackdown and tighter regulation.

The OECD has devised a common standard to simplify the exchange of financial details, which its 34 members and the 13 other countries agreed to adopt.

Financial companies will also be required to identify the ultimate beneficiaries of shell companies, trusts and similar legal arrangements that at present can be used to evade taxes.

Although the signatories did not officially commit to a specific deadline, a group of early adopters is aiming to have exchange of information up and running by 2017 using tax data collected from the end of 2015.

Banks will have a year to adapt their information technology systems while governments will have to modify their tax laws, Saint-Amans said.

Foot-draggers will be spared formal sanctions, but compliance will be monitored through international peer reviews similar to existing arrangements for the exchange of tax information on request.

The shift to an international standard on automatic sharing of information has been accelerated by the US Foreign Account Tax Compliance Act (FATCA) which forces banks outside the US to give Washington details of foreign accounts held by US citizens.