Global economic growth will flounder this year and next at rates not seen since the financial crisis as the march of globalisation grinds to a halt, international economic think-tank the OECD warned yesterday.
Long a motor for the global economy, trade growth is set to lag growth in the broader world economy this year, the Organisation for Economic Co-operation and Development said in an update of its main economic forecasts.
“This is well below past norms and implies that globalisation, as measured by trade intensity, may have stalled,” the Paris-based body said.
As a result, the OECD estimated the global economy would muster growth of only 2.9% this year, down from a forecast of 3% in its last estimates in June and the lowest rate since the global financial crisis of 2008-2009.
The OECD said many global supply chains that add economic value at each stage, and are often rooted in China and other east Asian countries, were unraveling as China sought to wean its economy off of exports for growth and some firms brought back production to their home countries.
A growing backlash against trade liberalisation as well as recessions in some big commodity-producing countries were adding to the trade slowdown, which the OECD warned could erode already flagging productivity and, thus, ultimately living standards.
“If we could get back on track with the kind of trade growth we had in the 1990s and 2000s, we would be able to return to productivity growth rates prior to the financial crisis,” OECD chief economist Catherine Mann said.
“Productivity has basically fallen by half since the financial crisis and that is a recipe for breaking promises to all of our citizens,” she said.
The OECD said growth in the US was, in particular, looking weaker than only a few months ago, forecasting growth in the world’s biggest economy at 1.4% this year, down from a forecast of 1.8% in June.
Although that would be the weakest growth since the financial crisis in 2009 and weaker than the eurozone’s 1.5%, the OECD said the US Federal Reserve should go ahead with an interest rate hike of a quarter percentage point.
That would help keep asset prices from galloping ahead of growth in the real economy, potentially creating bubbles, Ms. Mann said as Fed policymakers prepared for a rate decision yesterday.
Next year, the OECD sees US growth picking up to 2.1%, down from 2.2% in its last forecasts from June. While it still sees the UK economy contracting, the OECD has cooled its Brexit fears saying Britain could suffer less than initially feared.
It has forecast British growth of 1.8% for this year, up from 1.7% in June. However, it cut the outlook for 2017 by half to only 1% as uncertainty about Britain’s trading relationship with the EU lingers.
British finance minister Philip Hammond said yesterday he was confident his government has the tools it needs to help the economy as Britain prepares to leave the EU.
“The OECD highlights uncertainty in their outlook, and while I recognise there may be some difficult times ahead, I am confident we have the tools necessary to support the economy as we adjust to a new relationship with the EU” Mr Hammond said, ahead of outlining budget plans in November.
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