OECD warns of ‘wild card’ risk to global economy

A modest recovery underway in the global economy is at risk from economic nationalism and diverging central bank policies, the Organisation for Economic Cooperation and Development (OECD) has said as it forecast only a slight pick-up in growth.

OECD warns of ‘wild card’ risk to global economy

The Paris-based OECD estimated global economic growth would run at 3.3% this year before reaching 3.6% in 2018, unchanged from its last estimates in November.

OECD chief economist Catherine Mann said higher interest rates in the US could unleash damaging volatility on financial markets for some borrowers while potentially pushing the dollar higher.

“The economic nationalism is a much bigger wildcar because we don’t know how the language translates into policy at this point,” Ms Mann said as the OECD updated its outlook for major economies.

US president Donald Trump’s promises to put “America first” in trade, and calls for tariffs on imports from China and Mexico, caused concern among the US’s major trade partners.

Though Washington was not alone in using nationalistic rhetoric, Ms Mann said the OECD had estimated a 10% increase in US import costs would percolate through the economy and ultimately lift export costs by 15%

The OECD said that, with only a modest recovery in view in most countries, financial markets were becoming disconnected from economic reality as consumer spending and business investment remained weak.

With the US Federal Reserve widely expected to steadily hike interest rates for some time, the OECD said exchange rate swings could be expected. That could put at risk emerging market borrowers who binged on cheap dollar loans in recent years, especially in countries with excessive levels of private sector debt, such as China.

Updating its last forecasts for major economies, the OECD estimated the US economy would grow 2.4% this year as domestic demand firms, up from 2.3% in its last forecasts from November.

US growth was seen reaching 2.8% in 2018, down from a November estimate of 3%, as higher government spending helped offset the impact of rising interest rates and a stronger dollar.

With monetary policy relaxed and some fiscal policy easing in the eurozone, growth was seen steady this and next year at 1.6%.

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