A leading international economic organisation has warned that risks to the global outlook have increased.
The Organisation for Economic Cooperation and Development – the OECD – says in a new report that prospects have steadily deteriorated.
It forecasts continued growth of around 3% but warns that the risks have increased.
The report says a lack of direction on climate policy is holding back business investment.
Although the OECD is not forecasting a recession, it is a decidedly downbeat report.
There are calls for action from governments to address challenges, some of which have both long term and more immediate consequences.
Climate change is perhaps the most striking example.
The OECD says extreme weather events could lead to disruption of economic activity and could inflict long lasting damage on capital and land. They could also lead to what the report calls disorderly migration flows.
Insufficient policy action could increase the frequency of such events.
There is clearly a long term challenge for governments in addressing these issues, but the OECD says that there is already an impact on business investment.
In many countries it is investment and trade that has been at the centre of weakening economic performance.
It says governments must act quickly.
“Without a clear sense of direction on carbon prices, standards and regulation, and without the necessary public investment, businesses will put off investment decisions, with dire consequences for growth and employment,” the OECD says.
The report argues that more clarity on climate policy – and also on digitalisation – would trigger a marked acceleration of investment by business.
It suggests the creation of national funds to make public investments in these areas.
Among the other challenges that the OECD mentions is the change in the Chinese economy, it is becoming a more services-oriented economy which means the country’s demand for imported goods for its industries to process is unlikely to grow as strongly in the future.
Along with the shift in the shape of the Chinese economy, there has also been a gradual slowdown in the rate of growth since the start of the decade. For the previous thirty years, the economy had grown at a rate that the Chinese government accepted could no longer be sustained.
China is trying to ensure it is not too abrupt a slowdown. The possibility that it might not succeed is something the OECD identifies as a risk to the global economy.
US shares hit a record after the head of the central bank hinted at an interest rate cut to bolster growth.
Analysis by Andrew Walker, BBC economics correspondent
As ever in a Federal Reserve Chair’s remarks, there was no commitment to cut interest rates.
But the emphasis on economic uncertainties and below target inflation suggests an increasingly high probability that the Fed will do just that.
The concerns he raised included weaker momentum in some foreign economies which could affect the US. He also mentioned “government policy issues that have yet to be resolved”.
His reference to trade developments was partly about the tension between the US and China. But there was one item on this list that isn’t for the US to address- Brexit.
He didn’t spell out the reasons, but the fact that he flagged it up indicates a concern that the UK’s departure from the EU might have an adverse impact on the US economy.
The Fed has kept its current benchmark overnight interest rate in a range of between 2.25% and 2.50% since December. Mr Powell had first opened the door to a rate cut in comments made last month.
“Powell is setting it up, certainly for a July rate cut,” said Jack Ablin, chief investment officer at Cresset Capital.
And Briefing.com analyst Patrick O’Hare said Mr Powell’s comments “gave the market what it was looking for”.
The financial markets are indicating that the Fed at its 31 July meeting will cut interest rates by 25 basis points, although some analysts have seen the possibility of a larger cut.
His appearance on Capitol Hill comes at a sensitive time for both the Fed and Mr Powell personally, with President Donald Trump lashing out in a series of tweets for not cutting interest rates and needlessly slowing the economy.
At the same time, some blame Mr Trump’s own policies, in particular higher tariffs, and his unpredictable approach, for increasing the economic risks.