Global economic growth may have reached peak due to trade tensions – OECD report

Expansion in the global economy is slowing down as uncertainties intensify, the Organisation for Economic Cooperation and Development (OECD) has warned.

Its latest economic outlook for both 2018 and 2019 was less positive than it had predicted in May. Escalating trade tensions, tightening financial conditions in emerging markets and political risks could further undermine strong and sustainable medium-term growth worldwide, the thinktank said.

“The expansion may now have peaked,” it said, adding: “Global growth is projected to settle at 3.7 percent in 2018 and 2019, marginally below pre-crisis norms, with downside risks intensifying.”

The OECD has also noted rising differences across countries, in contrast to the broad-based expansion seen in the latter part of 2017 and earlier this year.

“Confidence has weakened, trade and investment growth have proven slower than anticipated and wage growth has remained modest across most countries despite OECD-wide unemployment having fallen below pre-crisis rates,” reads the report.

It pointed out that “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.” According to the outlook, slowdown in trade growth combined with widespread political uncertainty is the key factor weighing on the world economy.

“Trade tensions are starting to bite, and are already having adverse effects on confidence and investment plans,” said OECD Chief Economist Laurence Boone. 

“Trade growth has stalled, restrictions are having marked sectorial effects and the level of uncertainty on trade stances remains high. It is urgent for countries to end the slide towards further protectionism, reinforce the global rules-based international trade system and boost international dialogue, which will provide business with the confidence to invest.”

She stressed: “With tighter financial conditions creating stress on a number of emerging economies, especially Turkey and Argentina, a strong and stable policy framework will be key to avoid further turbulence.”

The OECD has called on policymakers to enhance resilience, boost productivity and improve inclusiveness.

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