The global economic expansion appears to have peaked, with diverging growth prospects worldwide and intensifying risks, according to the OECD’s latest Interim Economic Outlook
Economic growth prospects are now slightly weaker across the board than anticipated in May, when the OECD released its latest Economic Outlook. Escalating trade tensions, tightening financial conditions in emerging markets and political risks could further undermine strong and sustainable medium-term growth worldwide.
The OECD projects that the global economy will grow by 3.7% in both 2018 and 2019, with 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. The outlook and projections reflect a downward revision of the global economy since the previous Economic Outlook in May 2018, and cover all G20 economies.
The Outlook identifies the worrisome slowdown in trade growth – combined with widespread political uncertainty – as the principal factor weighing on the world economy. It underlines that further trade restrictions could have adverse effects on jobs and living standards, particularly for low-income households.
“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 sectoral 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,” Ms Boone said. “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 Outlook calls on policymakers to enhance resilience, boost productivity and improve inclusiveness. Policy should address the root causes of financial market pressures, including excessive asset prices and indebtedness in various forms, both public and private; improve resilience to shocks in both emerging and advanced economies; steer fiscal policy toward measures that support long-term growth; and focus reforms on skills and labour market inclusion to improve opportunities for all.