Escalating trade tensions are eroding global growth prospects, with the world economy set for its slowest expansion since the global financial crisis, the Organisation for Economic Co-operation and Development (OECD) said on Thursday.
In an update to its economic forecasts from May, the OECD cut its global growth forecast for this year to 2.9 percent from 3.2 percent.
“These would be the weakest annual growth rates since the financial crisis, with downside risks continuing to mount,” the 36-member organization said.
The IMF already lowered its own global forecasts in July in the face of the trade dispute between the US and China, the world’s Nos. 1 and 2 economies respectively.
“Our fear is that we are entering an era where growth is stuck at a very low level,” OECD chief economist Laurence Boone said. “All those risks that we have highlighted are really bringing us into dangerous territory for growth and obviously for jobs.”
Growth prospects for almost all G20 nations were revised down by the OECD, particularly those exposed to declining global trade and investment.
“Escalating trade policy tensions are taking an increasing toll on confidence and investment, adding to policy uncertainty, weighing on risk sentiment in financial markets and endangering future growth prospects,” the OECD wrote.
The US economy was now expected to expand by 2.4 percent this year, a downward revision of 0.4 percentage points from the May forecast, and significantly slower than the 2.9 percent last year.
Next year’s forecast was cut by 0.3 percentage points to 2.0 percent.
Chinese growth was expected to slow to 6.1 percent this year, a downward revision of 0.1 points, while next year’s forecast was cut by 0.3 points to 5.7 percent.
US President Donald “Trump’s brinkmanship on trade with China has left consumers, businesses and financial markets on edge. Not knowing whether the next presidential tweet will ease or exacerbate tensions make for an environment of extreme uncertainty, pushing businesses to turn cautious on investment and hiring, and households to swing from spending to saving,” it said.
“Collective effort is urgent” and the effectiveness of monetary policy could be enhanced by “stronger fiscal and structural policy support,” the OECD said.
It revised down its forecast for the 19-country eurozone to 1.1 percent growth this year and 1.0 percent next year, whereas previously it had been expecting activity in the single-currency area to pick up speed. Britain’s growth outlook was also lowered as uncertainty over Brexit persists, with the OECD now penciling in an expansion of 1.0 percent this year and 0.9 percent next year, compared with 1.4 percent last year.
“A no-deal exit would be costly in the near-term, potentially pushing the United Kingdom into recession in 2020 and reducing growth in Europe considerably,” the OECD said.
The OECD is the latest institution sounding the alarm over the state of the global economy. In the past two weeks, the US Federal Reserve, the European Central Bank, the People’s Bank of China and other central banks have eased policy to shore up demand, urging governments at the same time that fiscal stimulus will be needed to ensure that their efforts will not be futile.
Additional reporting by Bloomberg
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