OECD predicts global growth will slow

20 Sep 19

Global growth will slow to 2.9% in 2019 and 3% in 2020 because of the trade war between China and the US, and uncertainty caused by the UK’s departure from the EU.

This is according to the OECD, which revised down growth in almost all G20 economies, in its interim economic outlook released yesterday.

World growth was 3.6% in 2018, the OECD showed (see table below).

“The global economy is facing increasingly serious headwinds and slow growth is becoming worryingly entrenched,” said 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.”

The bilateral tariff measures introduced by the US and China since the start of 2018 “will continue to exert a significant drag on global activity and trade over the next two years”, the OECD said.

It also predicted a no-deal Brexit would cause a GDP decline of about 0.5% “in the near-term” and cause the UK economy to contract 2% more than it would otherwise. It predicted a no-deal Brexit would likely push the UK into recession. 

The report also said that the world’s output is being held back by the “persistent weakness in manufacturing sectors”, which will “weaken labour demand”.

It called for governments to ensure monetary policy remains “highly accommodative in the advanced economies. Fiscal policy needs to assume a bigger role in supporting growth in the advanced economies,” it said.

The OECD said while central banks in Europe would normally adopt an accommodative policy to mitigate the impact of trade and uncertainty shocks, in the case of a no-deal Brexit, “a cut of this magnitude could be difficult to implement”.

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