The OECD urged Monday nations to step up environmental investments to ward off not only catastrophic climate change but to give the global economy a much-needed boost as China struggles to rebalance its economy.
With a critical UN summit opening in Paris later this month that aims to get an agreement on cutting back greenhouse gas emissions enough to limit the increase in global temperatures to a safe level, the OECD said action could also support the global economy.
“Addressing climate change is critical for long-term economic sustainability and healthy growth,” said the OECD’s chief economist, Catherine Mann, in a statement accompanying the body’s latest update on the global economic outlook.
That report singled out a slowdown in China as it seeks to rebalance its economy from manufacturing and exports to services and consumption as being the main culprit behind slower global growth, along with subdued investment.
Mann said “…environmental spending would both support demand and encourage the necessary rebalancing of the global economy.”
The Organisation for Economic Development and Cooperation, a Paris-based policy analysis group that represents 34 advanced economies, trimmed its forecast for global growth this year to 2.9 percent, while lowering its 2016 forecast to 3.3 percent.
Thanks to prompt introduction of stimulus measures, however, the OECD bumped up its forecast for Chinese growth this year to 6.8 percent, with 6.5 percent growth foreseen in 2016.
Slower Chinese growth has triggered a slump in commodity prices that has affected emerging economies across the world.
Mann characterised as “deeply concerning” the stagnation in global trade this has caused, as in the past this has led to global recessions.
In a section of its report on climate change, the OECD said “a strong response with decisive and coordinated policies could strengthen the recovery, with a more predictable policy environment boosting investment and research” needed to face up the possible catastrophic environmental changes if temperatures rise more than 2 degrees C.
– Growth can support climate –
It said most policy actions could be budget-neutral and potentially part of needed fiscal reforms, while green investments are pro-growth and the impact on the poor containable.
“Hence, concerns related to fiscal balance, inequality or growth should not be used as an excuse to delay policy action on climate change,” said the OECD.
It called for phasing in effective emissions pricing and abolishing fossil fuel subsidies, along with increasing reasearch spending and promoting technology transfer so climate change mitigation techniques spread as quickly as possible.
Mann said “a predictable policy stance would create a more positive environment for investment that would support growth and trade, as well as put us on a path to urgently needed climate improvement.”
The OECD report comes as a three-day ministerial meeting was being held in Paris to resolve differences ahead of the November 30-December 11 Conference of Parties (COP21) to a repeat of the 2009 Copenhagen summit which ended without a binding global pact.
The OECD expects global growth to strengthen slowly, picking up to 3.3 percent next year and 3.6 percent in 2017.
It forecasts growth in the United States to remain “relatively solid” at 2.4 percent this year and 2.5 percent in 2016 as private sector investment outweighing an appreciation of the dollar as interest rates rise.
Growth in the eurozone is set to strengthen but remain lacklustre, even though the OECD trimmed its forecast to 1.5 percent this year and 1.8 percent in 2016.
Japan will remain softer due to weaker demand in Asia, with growth picking up to 1.0 percent next year from 0.6 percent this year.
Brazil, hit by the collapse in commodity prices, doesn’t fare nearly as well. The OECD now sees Brazil’s economy contracting by 3.1 percent this year, worse than the 2.8 percent contraction it forecast in September.
For 2016 it sees a continuation of the recession with a 1.2 percent contraction.