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  HOME | Business & Economy (Click here for more)

OECD: Heightened Tensions, Stagnating Trade Weakening Global Growth

PARIS – A global economic downturn characterized by sluggish growth and stagnating trade amid escalated China-US tensions is threatening to become firmly established, the Organization of Economic Cooperation and Development said in a report published on Thursday.

In its annual forecast, the OECD warned that the global outlook was “fragile” as trade policy tensions among the world’s leading economies, most notably the United States and China, have deepened.

“GDP growth remains weak, with a slowdown in almost all economies, and global trade is stagnating,” the report said. “A continued deepening of trade policy tensions since May is taking an increasing toll on confidence and investment, further raising policy uncertainty.”

After falling to 2.9 percent this year, the lowest rate since the financial crisis in 2008-2009, global GDP is projected to stay close to 3 percent, and given ongoing trade tensions between Washington and Beijing, is only expected to pick up slowly.

“Economic uncertainty has become the most pressing concern for firms around the world in the 18 months since the start of US-China trade tensions,” the OECD said, adding that this paradigm of heightened uncertainty was impacting both capital investment and household spending.

The report warns that growth could further weaken, with global trade tensions, uncertainty surrounding the United Kingdom’s withdrawal from the European Union and Beijing policies to prevent a more severe slowdown in China cited as primary downside risks.

“Exceptionally weak” global trade is mainly explained by the bilateral tariff measures that the US and China has imposed on one another since the start of 2018, something which is also contributing significantly to weak global demand, the report added.

Global trade volume growth, which represents the sum of goods and services, is estimated to have declined to 1.2 in 2019, the lowest since 2009, although a “modest recovery” to around 2.25 percent in 2021 is projected spurred by trade stabilization in Asia.

A sustained hike in prices of crude oil coupled with raised geopolitical tensions would also weaken growth prospects, the OECD said, although decisive policymaking to reduce uncertainty “would boost confidence around the world.”

Growth is expected to remain “subdued” at around 3 percent for the foreseeable future into 2021, around 0.3 or 0.4 percent below estimated global potential output growth.

Further slowdowns are anticipated for the US, which is expected to moderate from 2.3 to 2 percent, Japan, which is set to slow from just 1 percent to 0.6 percent, and China, where GDP growth is forecast to further decline to around 5.5 percent by 2021.

The eurozone is expected to remain stable but subdued, between 1 and 1.25 percent.

In India, GDP growth is projected to increase from under 6 percent in 2019 to 6.5 percent by the end of 2021, while Brazil is also expected to see a gradual recovery, picking up from 0.8 percent to 1.75 percent over the next two years.

The OECD warns that the gloomy outlook, which is among the worst since the financial crisis a decade ago, could worsen still due to the “risk of further escalation of trade and investment policy restrictions around the world.”

The report also warned that a sustained decline in Chinese domestic demand of 2 percent would lead to a major global growth slowdown, especially if this is accompanied by increased uncertainty and weak global financial conditions.

To mitigate these risks, the OECD urged policymakers to respond with measures that “strengthen confidence, stimulate aggregate demand and boost potential growth,” and highlighted the need for a “coordinated response across all major economies” as the most effective measure to tackling an even-weaker than projected global economy.

 

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