Angel Gurria

Angel Gurria is Secretary-General of the OECD, a group that downgraded its expectations for Canada's economy this year and next on Wednesday. (Hannibal/Reuters)

The OECD has reduced its 2015 and 2016 economic growth forecasts for Canada, citing the drag caused by a significant drop in prices for oil and other commodities since its previous outlook in November.

The Paris-based organization is now estimating Canada's economy will grow by to 2.2 per cent this year, 0.4 less than previously thought. Next year's forecast has been trimmed to 2.1 per cent, down 0.3.

The OECD says Canada is among the countries that has been affected by the sharp decline in oil and commodity prices while others, particularly in Europe and Asia, will benefit from sharp drop in oil prices to six-year lows.

Its forecast for overall global growth has been increased by 0.1 to four per cent this year, and by 0.2 to 4.3 per cent in 2016.

Growth in the United States gross domestic product is estimated at 3.1 per cent in 2015 and 3.0 per cent in 2016, unchanged from the November forecast.

"Lower oil prices both raise the real incomes of households and reduce costs for firms, and should therefore be beneficial for global growth, notwithstanding the loss of real income for oil producers," it said.

The OECD said oil prices are now about 35 per cent below where they were when the previous semi-annual forecast was done in November.

Oil prices — which had stabilized at about US$50 a barrel — have now slid for seven days in a row. The April contract in New York fell $1.04 to US$42.42 a barrel early Wednesday. Crude had been as high as US$107 a barrel last summer.

The Organization of Economic Co-operation and Development is a grouping of the world's richest countries that provides updates to its forecasts each March and November.

The OECD warned in the updated issued on Wednesday that unusually low inflation and interest rates could increase the risk of global financial instability. And it noted still-high unemployment levels in many countries, despite the improving growth picture.

After years of crisis and stagnation in Europe, the OECD said plunging oil prices and the recently enacted monetary stimulus from the European Central Bank are a "much-needed opportunity" to get growth going again. It predicted 1.4 per cent growth for the combined growth of the 19 countries that use the euro currency.

Insisting that monetary policy alone isn't enough to ensure a return to strong growth, it urged European leaders to stabilize budget rules and other regulations.

The OECD said India should grow faster than China this year, at 7.7 per cent. For Japan, it raised forecasts slightly to 1 per cent.

With files from The Associated Press