A collapse in trade growth suggests that globalization might be stalling and is contributing to a stagnation in world economic output, the Organisation for Economic Co-operation and Development (OECD) said.
The OECD trimmed its global growth forecasts by 0.1 point for this year and next to 2.9 percent and 3.2 percent respectively. The volume of world trade declined in the first quarter and will fall short of overall output growth in the full year, the Paris-based organization said yesterday in a report.
With Republican US presidential candidate Donald Trump threatening to slap tariffs on Chinese imports and contenders for France’s presidential election touting protectionism, the OECD warned that a key driver of prosperity in recent decades is increasingly under threat.
“Trade growth rates have deteriorated dramatically since the financial crisis,” OECD chief economist Catherine Mann said in an interview. “Some people might say this is a good thing. No, this is damaging and it shows up as a decline in productivity growth.”
Increasing trade fueled the expansion of the world economy between the mid-1980s and the mid-1990s, with trade growing at more than twice the pace of global output by the end of the final decade of the last century.
“Erosion of trade in some ways is death by a thousand cuts, with protectionism encroaching here and there,” Mann said. “If we could get global trade back on track, we would be able to recover something.”
Since the 2008 financial crisis, policymakers have struggled to revive both trade and growth. The OECD warned that the expansions in developed economies are weakening as major emerging market commodity producers show only a “gradual improvement.”
The US economy, the world’s largest, is now expected to grow just 1.4 percent this year, down from the 1.8 percent predicted in June, according to the report.
The eurozone forecast was cut by 0.1 point to 1.5 percent and the outlook for Japan was lowered 0.1 point to 0.6 percent.
The OECD also cut its UK growth forecast and said the economy might weaken further, despite signs of stabilization since the shock of the Brexit vote in June.
The report showed the British economy will expand 1 percent next year. That is just half the pace the OECD projected in early June, before the referendum to leave the EU.
The OECD, which had warned that leaving the EU was a major risk, said the UK’s economic development so far is broadly consistent with the “more moderate scenarios” set out prior to the vote.
“Uncertainty about the future path of policy and the reaction of the economy remains very high and risks remain to the downside,” the OECD said. “In the longer term, the UK’s future trading arrangement with the EU and other partners will be critical to its economic prospects.”
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