OECD tells the world to spend, spend, spend

Major economies must embark on a huge spending spree to spur growth, one of the world’s leading think-tanks warned on Monday.

The Office for Economic Co-operation and Development says wages will tumble and unemployment soar unless countries including Britain spend, spend, spend their way out of trouble.

Critics of the OECD will warn that such a move would pile on massive debts to nations already dangerously in the red. But the report, titled Escaping the Low-Growth Trap and written by OECD chief economist Catherine Mann could find support at both the Bank of England and in the White House.

Mann warns: “Around the world, private investment has been weak, public investment has slowed and global trade growth has collapsed, all of which have limited the improvements in employment,” adding money needs to be made available “for economies to grow sufficiently to make good on promises to their citizens”.

At the Bank, Governor Mark Carney has been warning for some time that too much is expected of monetary policy. Merely cutting interest rates and printing money won’t work in the long term, he argues.

In the US, President-elect Donald Trump is thought to be readying a $1 trillion (£800 billion) infrastructure splurge financed by debt to get the economy moving.

Anticipating the criticism, the report notes: “Some might argue that there is no space for such fiscal initiatives. In fact after five years of intense fiscal consolidation, debt-to-GDP ratios in most advanced countries have flattened.”

Continuing low interest rates offer a rare opportunity for governments to borrow cheaply and secure a better future, it believes.

The OECD’s latest forecasts, also out on Monday, are relatively upbeat on UK prospects. The OECD says the UK will grow at 2% this year and 1.2% in 2017 — both figures are 0.2 percentage points higher than the last time it reported.

The report is concerned about Brexit’s effect on the UK which “has reduced growth prospects and increased volatility, as reflected by the large currency depreciation”. It says: “Higher inflation is projected to hit households’ purchasing power and reduce corporate margins. As growth slows, the unemployment rate is projected to rise.”

Panmure Gordon’s chief economist Simon French said the OECD was “woefully behind the curve”.

He added: “The time for huge spending increases was five years ago. Today there is much less spare capacity in the large economies. A large spending spree in the UK or US now is likely to generate higher inflation and fund inefficient projects.”