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| Workers unload freight at Zhangjiagang in China’s eastern Jiangsu province. China and the US are ramping up tariffs in a tit-for-tat trade war. |
The west’s leading economic thinktank has warned that the expansion in the global economy may have peaked after cutting its growth forecasts for an array of rich and developing countries.
In its latest update on the health of the world economy, the Organisation for Economic Cooperation and Development said the outlook for both 2018 and 2019 was less good than it had predicted in May.
The Paris-based OECD called for immediate action to halt the “slide towards protectionism”, noting that trade tensions were already having an impact on confidence and investment.
“The expansion may now have peaked,” the OECD said in its interim economic outlook. “Global growth is projected to settle at 3.7% in 2018 and 2019, marginally below pre-crisis norms, with downside risks intensifying.”
The OECD said it was cutting its 2018 forecast by 0.1 percentage points and its 2019 forecast by 0.3 points.
Britain has had its growth forecast shaved by 0.1 points in both years to 1.3% and 1.2%, respectively – with the OECD saying the squeeze on living standards was affecting consumer spending and uncertainty about Brexit leading to soft investment.
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It also cut its forecasts for the two biggest eurozone economies. Germany was downgraded by 0.2 points to 1.9% in 2018 and 0.3 points to 1.8% in 2019, while France was cut by 0.3 points to 1.6% in 2018 and by 0.1 points to 1.8% in 2019.
“The recent increase in risk spreads on Italian government bonds, and the associated decline in the equity prices of Italian banks, provide a demonstration of the pace at which continued vulnerabilities in the euro area can re-emerge,” the OECD said.
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| New Chief Economist of the Organisation for Economic Co-operation and Development (OECD), Laurence Boone |
The US is expected to be the fastest growing of the G7 group of industrialised countries in both 2018 and 2019, and the OECD said that in contrast to the broad-based expansion in late 2017 there were now growing differences in growth performance between countries.
“Confidence has also eased and investment and trade growth have proved softer than anticipated. Business survey data point to slower growth in both advanced and emerging-market economies, and incoming new orders have eased, especially manufacturing export orders,” the interim economic outlook said.
Recent problems in Argentina and Turkey have led to big cuts in the OECD’s growth forecasts, but the 34-nation rich country club said that so far there was no sign of the contagion that swept through emerging markets at the end of the 1990s.
It warned, however, that the recovery since the recession of 10 years ago had been slow and only possible with an exceptional degree of stimulus from central banks. “A decade after the financial crisis, vulnerabilities remain in financial markets from elevated asset prices and high debt levels. Reforms have strengthened the banking system, but risks have shifted towards less tightly regulated non-bank institutions.”
The thinktank expressed concern about the effects of the protectionist measures imposed since the start of the year.
Gallery: The world's fastest and slowest growing economies in 2018 (StarsInsider)
“Global trade growth slowed in the first half of 2018, with trade tensions already having adverse effects on confidence and investment plans. Additional trade restrictions will harm jobs and living standards, particularly for low-income households.”
The OECD said increased trade tensions and uncertainty about trade policies were a “significant source of downside risk to global investment, jobs and living standards.”
In a week in which another round of tit-for-tat tariffs was announced by the US and China, the thinktank said uncertainty was leading to some firms delaying international orders or changing their supply chain and production locations to minimise the impact of trade barriers.
“An immediate need is to arrest the slide towards protectionism and reinforce the global rules-based international trade system through multilateral dialogue, providing business with the confidence to invest and preventing the harm to longer-term growth prospects that would result from a retreat from open markets.”
