Weak global economy is said to threaten government finances

A currency trader walks by the screens showing the Korea Composite Stock Price Index (KOSPI), in Seoul, South Korea, on Feb. 19, 2016. (Lee Jin-man / AP)

WASHINGTON -- Sluggish global growth threatens to keep governments around the world from being able to pay pensions and bondholders, the chief economist of the Organization for Economic Cooperation and Development said Wednesday.

The OECD, representing mostly advanced economies, has lowered its forecast for worldwide economic growth to 3 per cent this year from the 3.3 per cent it estimated in November. When growth is weak, governments collect less revenue and struggle to pay pensioners and meet all their debt payments.

"These kinds of numbers mean we are not going to make good on these commitments," Catherine Mann, the group's chief economist, told reporters.

She said that to jump-start growth, countries need continued stimulus from central banks, government spending and tax policies that encourage expansion and economic reforms, such as making regulations more consistent from country to country.

Since the financial crisis, the World Bank, International Monetary Fund and OECD have repeatedly overestimated the strength of the global economic recovery. Mann suggested that the economy no longer works the way most economists were taught: Low unemployment in the United States and other countries has not triggered strong pay growth, for example.

Low interest rates have not encouraged businesses to invest. And easy-money policies by the world's central banks have not ignited inflation.

"The relationships are broken," she said.

Mann asked her team to consider the new economic realities when it issued its lower economic growth forecast in February. She said she is confident the OECD won't have to downgrade its estimates when it releases its next forecast in June.