OECD: Trade tensions and BREXIT hit global growth

The global economy has become increasingly fragile and uncertain. Global growth is slowing and downside risks continuing to mount, according to the OECD’s latest Interim Economic Outlook.

Economic prospects are weakening for both advanced and emerging economies. Global growth could get stuck at persistently low levels without firm policy action from governments, according to the OECD Outlook.

OECD oulook 2019

Escalating trade conflicts are taking an increasing toll on confidence and investment, adding to policy uncertainty, aggravating risks in financial markets and endangering already weak growth prospects worldwide. The OECD projects that the global economy will grow by 2.9% in 2019 and 3% in 2020. These are the weakest annual growth rates since the financial crisis, with downside risks continuing to mount.

The Outlook covers all G20 economies. It also includes downward revisions to projections from the previous Economic Outlook in May 2019 for almost all countries. It mentions particularly those most exposed to the decline in global trade and investment that has set in this year.

The trade war between the United States and China has plunged global growth to its lowest levels in a decade OECD.

The Outlook identifies the trade conflicts as the principal factor undermining confidence, growth and job creation across the world economy and underlines that continuation of trade restrictions and political uncertainty could bring additional adverse effects. While solid consumer demand has supported service sector output to date, persistent weakness in manufacturing sectors and continuing trade tensions could weaken employment growth, household income and spending.

The global economy is facing increasingly serious headwinds and slow growth is becoming worryingly entrenched
OECD Chief Economist Laurence Boone

The uncertainty provoked by the continuing trade tensions has been long-lasting, reducing activity worldwide and jeopardising our economic future. Governments need to seize the opportunity afforded by today’s low interest rates to renew investment in infrastructure and promote the economy of the future,” Ms Boone said.

BREXIT

OECD: A no-deal BREXIT will be a large negative shock to the UK economy!

If Britain leaves without a deal, UK economy will be 2% lower than otherwise in 2020-2021 even if its exit is relatively smooth with fully operational infrastructure in place, the OECD said. This forecast will only change if Britain leave the EU smoothly with a transition period.

The Outlook calls on central banks to remain accommodative in the advanced economies, but stresses that the effectiveness of monetary policy could be enhanced in many advanced economies if accompanied by stronger fiscal and structural policy support. It says fiscal policy should play a larger role in supporting the economy, by taking advantage of exceptionally low long-term interest rates for wider public investment to support near-term demand and future prosperity. Greater structural reform ambition is required in all economies to help offset the impact of the negative supply shocks from rising restrictions on trade and cross-border investment and enhance medium-term living standards and opportunities.

OECD for Global Growth

The Organisation for Economic Co-operation and Development (OECD) provides a forum in which governments can work together to share experiences and seek solutions to common problems. OECD works with governments to understand what drives economic, social and environmental change. It measures productivity and global flows of trade and investment. The OECD analyses and compares data to predict future trends of global growth. It also sets international standards on all sorts of things. Standards from the safety of chemicals and nuclear power plants to the quality of cucumbers.

The origins of the Organisation for Economic Co-operation and Development date back to 1960, when 18 European countries plus the United States and Canada joined forces to create an organisation dedicated to global development. Today, the 34 member countries span the globe, from North and South America to Europe and the Asia-Pacific region. The member countries include many of the world’s most advanced countries but also emerging countries like Mexico, Chile and Turkey.

 

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