One of the world's leading economic organisations has called for its richest members to reduce austerity and increase investment in infrastructure.
Just weeks before the Chancellor George Osborne delivers his 2016 Budget, the OECD (Organisation for Economic Cooperation and Development), which has previously supported his plans to reduce the deficit, has warned that richer countries have become over-reliant on monetary policy to stimulate growth.
The Bank of England, like many central banks around the world, have kept interest rates at record lows since the financial crisis and embarked on a money creation policy known as quantitative easing. But the OECD says that monetary policy is no longer enough, and called for greater public spending.
“A stronger collective policy response is needed to strengthen demand," the OECD said.
"Monetary policy cannot work alone. Fiscal policy is now contractionary in many major economies. Structural reform momentum has slowed."
In its interim outlook report, the organisation cut its global growth forecast from 3.3% to 3% for this year, and from 3.6% to 3.3% in 2017. In the UK, growth is expected to be 2.1% his year and 2% next year, down 0.3 percentage points from forecasts made in November.
The OECD added: "The downgrade in forecasts is widespread, reflecting a broad range of disappointing incoming data for the fourth quarter of 2015 and the recent weakness and volatility in global financial markets.”
The organisation said there had been a “shortfall in investment following the cuts imposed across advanced countries in recent years”. But it stressed that “the benefits of structural reforms would be enhanced by a more supportive demand environment, which increases the benefits to firms and workers of the new opportunities created and helps to support the necessary reallocation of resources.”
Earlier this month, the UK's Institute of Fiscal Studies (IFS) said George Osborne would need to perform a “precarious balancing act” in the approaching Budget in order to achieve his deficit reduction target.
The body warned that the Budget could contain big tax rises or spending cuts, with tough economic conditions making it more than a possibility.