Publication of OECD Economic Outlook 2016/II.
Paris, 28 November 2016.

Though the growth rate of the global economy will increase in the next two years, it will be still below the pre-crisis average. Growth supporting fiscal policy and structural reforms are thus essential going forward according to the main message of the semi-annual Economic Outlook publication which was presented by secretary general Angel Gurría and chief economist Catherine Mann.

Secretary general Angel Gurría and chief economist Catherine Mann at the publication of Economic Outlook 2016/II  Source: OECD

They have highlighted that the fiscal space has improved as a result of the very low interest rates despite still mediocre growth and high public debt. This makes it possible to raise public investment by 0.5% of GDP for 3-4 years financed by long term bonds without increasing the public debt to GDP ratio. According to the calculation of the OECD, this fiscal stimulus would increase the big countries’ GDP by 0.4-0.6% in the first year, while common action would bring considerable additional benefits.

The OECD highlighted that structural changes in the fiscal structure can support growth without increasing the fiscal deficit, which might be more suitable for example to Hungary where they advise a smaller deficit based on the cyclical position of the Hungarian economy. The proposed changes on the income side – which are in line with the government’s previous steps – are to decrease the corporate income tax, the personal income tax and social security contributions while relying more on wealth, environmental and turnover taxes.

According to the latest forecast of the OECD, global economic growth will be 2.9% in 2016 while it accelerates to 3.6% in 2018, mainly because of the better economic performance of the USA, Russia and Brazil. According to the OECD, US growth can substantially benefit from the new administration’s fiscal plan which includes both tax cuts and increased public investment. The Eurozone’s growth will be 1.7% in 2016 and the OECD does not forecast any acceleration in the next two years.

The OECD’s growth forecast for 2016 for Hungary is 1.7% which is considerably lower than the government’s forecast and the market consensus. The OECD also forecasts a sharp acceleration in 2017, while the unemployment rate can reach 4.5%.

Gábor Horváth