Colin Brinsden, AAP Economics Correspondent
(Australian Associated Press)

The global economy looks set to post its best performance in seven years in 2018, a bonus for Australia which is already benefiting from this upswing.

But the Organisation for Economic Cooperation and Development has questioned how sustainable this expansion is when business investment remains weaker than the average of past recoveries among OECD economies.

“Short-term momentum is no guarantee of medium-term sustainable growth,” the OECD warns in its interim economic outlook.

The Paris-based institution is sticking with its 3.5 per cent global growth forecast for 2017, while upgrading next year to 3.7 per cent from its 3.6 per cent projection made in June.

World growth was 3.1 per cent in 2016.

The OECD says short-term momentum is buoyed by a rebound in industrial production, consumer spending and investment since the final six months of 2016, while trade growth has recovered from a trade slump in late 2015/early 2016.

But it says interest rate support remains necessary to ensure the recovery is sustained.

“Authorities face a difficult balancing act in continuing to provide support while managing financial stability risks,” the OECD says.

“The long period of low interest rates has boosted asset price valuations and created financial distortions that will be testing to resolve.”

It says Australia is among a handful of advanced economies where elevated house prices have raised financial stability risks, if rising interest rates were to trigger a housing market correction.

KEY GROWTH FORECASTS (CHANGE SINCE JUNE)

WORLD

2016 – 3.1 pct

2017 – 3.5 (0.0)

2018 – 3.7 (+0.1)

G20 (including Australia)

2016 – 3.2 pct

2017 – 3.7 (+0.1)

2018 – 3.8 (0.0)

US

2016 – 1.5 pct

2017 – 2.1 (0.0)

2018 – 2.4 (0.0)

JAPAN

2016 – 1.0 pct

2017 – 1.6 (+0.2)

2018 – 1.2 (+0.2)

CHINA

2016 – 6.7 pct

2017 – 6.8 (+0.2)

2018 – 6.6 (+0.2)