The Organisation for Economic Co-operation and Development (OECD) yesterday slashed its annual global growth forecast, warning that US President Donald Trump’s tariffs blitz would stifle the world economy — hitting the US especially hard.
After 3.3 percent growth last year, the world economy is expected to expand by a “modest” 2.9 percent this year and next year, the Paris-based OECD said in a report.
In its previous report in March, the OECD had forecast growth of 3.1 percent for this year and 3 percent for next year.
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“The global outlook is becoming increasingly challenging,” said the OECD, an economic policy group of 38 mostly wealthy countries.
It said that “substantial increases” in trade barriers, tighter financial conditions, weaker business and consumer confidence, and heightened policy uncertainty would all have “marked adverse effects on growth” if they persist.
The OECD is holding a ministerial meeting in Paris yesterday and today, with US and EU trade negotiators expected to hold talks on the sidelines of the gathering after Trump threatened to hit the EU with 50 percent tariffs.
The G7 is also holding a meeting focused on trade.
“For everyone, including the United States, the best option is that countries sit down and get an agreement,” OECD chief economist Alvaro Pereira said in an interview.
“Avoiding further trade fragmentation is absolutely key in the next few months and years,” Pereira said.
In the report, he said that “weakened economic prospects will be felt around the world, with almost no exception.”
“Lower growth and less trade will hit incomes and slow job growth,” he added.
The outlook is particularly gloomy for the US, which is expected to grow by just 1.6 percent this year, down from 2.2 percent in the previous outlook, and slow further to 1.5 percent next year, the OECD said.
“This reflects the substantial increase in the effective tariff rate on imports and retaliation from some trading partners,” the OECD said.
The effective tariff rate on US merchandise imports has gone from 2 percent last year to 15.4 percent, the highest since 1938, it said.
The OECD also blamed “high economic policy uncertainty, a significant slowdown in net immigration and a sizeable reduction in the federal workforce.”
While annual inflation is expected to “moderate” among the G20 economies to 3.6 percent this year and 3.2 percent next year, the US is “an important exception.”
US inflation is expected to accelerate to just under 4 percent by the end of the year, two-times higher than the US Federal Reserve’s target for consumer price increases.
The OECD slightly reduced its growth forecast for China from 4.8 to 4.7 percent this year.
Another country with a sizeable downgrade is Japan: The OECD cut the country’s growth forecast from 1.1 percent to 0.7 percent.
However, the outlook for the eurozone economy remains intact with 1 percent growth.
“There is the risk that protectionism and trade policy uncertainty will increase even further and that additional trade barriers might be introduced,” Pereira wrote.
“According to our simulations, additional tariffs would further reduce global growth prospects and fuel inflation, dampening global growth even more,” he said.
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