OECD warns risks from markets substantial

Governments cannot continue to rely on low interest rates alone to support a global economy that is growing at its slowest pace in five years.

That's the latest assessment of the Organisation for Economic Cooperation and Development (OECD), which has been forced to make cuts to its economic forecasts, while warning the risks from volatile financial markets are "substantial".

The OECD, in its Interim Economic Outlook, now expects world growth in 2016 to be 3 per cent rather than the 3.3 per cent it predicted in November.

Similarly, 2017 growth is seen at 3.3 per cent instead of 3.6 per cent.

These rates are the lowest in the past five years and well below long-run averages.

"They are also lower than would be expected during a recovery phase for advanced economies," the OECD said.

It downgraded the growth forecasts for all of the world's top advanced economies, including the United States.

And while there was no specific mention of Australia in Thursday's report, it said low prices are depressing commodity exporters.

"Financial markets are reassessing prospects, leading to lower equity prices and volatile markets and capital flows," the Paris-based institution said.

"This underlines the downside risk to economic activity."

It urges governments to take monetary, fiscal and structural action to support demand.

Fiscal policy is now contractionary in many major economies while momentum in structural reform has slowed.

"Experience to date suggests that reliance on monetary policy alone has been insufficient to deliver satisfactory growth," it said.

In Australia, the Reserve Bank has said a low inflation outlook may provide scope for easier monetary policy "should that be appropriate".

Treasurer Scott Morrison insists government spending must be brought under control to help pay for modest income tax cuts to offset the plight of bracket creep, which will be forcing middle income earners into higher income tax brackets just through wage inflation.