OECD Gets Brazil Really Wrong; Common Factors With Far More Than Brazil

I wrote last week about the OECD’s sudden alarm over global growth “flatlining” but I think it important and relevant to further emphasize why. If you go back only to June last year, their economic outlook for the world sounds distinctly familiar.

The OECD has cut its global economic growth forecast for this year but says it expects lower oil prices to ensure a gradual recovery, even if weak investment remains a worry.

Growth is also being buoyed by ultra-supportive central bank policy in the big developed economies and in many places outside the United States by a stronger dollar, which makes the exports of other currency zones relatively cheaper.

Only months later, curiously none of that assessment remains:

The OECD poured cold water on any lingering hopes of a pick-up in global economic growth this year on Thursday, slashing its forecasts for the United States, Europe and Brazil and urging world leaders to act collectively to strengthen demand.

What I think is most fundamental is their shift in how they view the dollar, including oil somehow becoming a “headwind” after being figured as more than a mild “tailwind” not all that long ago. Last June, they suggested the “stronger dollar” would actually help export growth in especially the more worrisome locations, particularly EM’s. Now, not so much:

Across the Atlantic, U.S. growth slowed in the second half of last year under the weight of a stronger dollar which dragged on exports, and the impact of lower oil prices on the country’s large oil and gas industry.

Among the largest emerging economies, Brazil was seen as a major victims of falling commodity prices, with a recession expected to be deeper than feared at -4.0 percent this year.

It’s fair to suggest, as with all orthodox economists and their outfits, that the OECD doesn’t really understand the mechanics of the dollar; at all. Nowhere is that more evident than Brazil. In its November 2013 projections, the OECD expected 2.5% real GDP growth for Brazil in CY 2015. As late as November 2014, with Brazil already showing very desperate signs in especially “dollar” financing and the related economic segments, they still suggested 2015 growth at 1.5%. Neither of those growth projections would be confused with strong or robust, especially for an EM like Brazil, but they weren’t disastrous, either. Calamity, however, is all Brazil has seen which was and should have been entirely predictable had the OECD understood “dollar” implications.