Business World

Tuesday 16 October 2018

OECD cuts global growth forecast as trade tensions bite

The world economy is on course for growth this year of 3.7pc - up from 3.6pc last year, said the Organisation for Economic Co-operation & Development (OECD) (stock picture)
The world economy is on course for growth this year of 3.7pc - up from 3.6pc last year, said the Organisation for Economic Co-operation & Development (OECD) (stock picture)

Leigh Thomas

Global economic growth has peaked in the face of rising trade frictions and emerging market turbulence, the OECD said yesterday, trimming its earlier outlook.

The world economy is on course for growth this year of 3.7pc - up from 3.6pc last year, said the Organisation for Economic Co-operation & Development (OECD).

The OECD downgraded the eurozone's growth forecast for this year to 2.0pc from 2.2pc, and nudged next year's outlook down to 1.9pc from 2.1pc.

In its last economic outlook in May, the Paris-based policy forum had forecast growth of 3.8pc this year and 3.9pc in 2019, but it said in an update on Thursday that growth had peaked since those last projections were made. The OECD said trade growth, the engine behind the global upswing in recent years, had slowed this year to around 3pc from 5pc in 2017 as tensions between the United States and its major trade partners weighed on confidence and investment.

Even though the US is the source of these trade frictions, the economic outlook for the US was nevertheless the brightest amongst the OECD's major developed economies, thanks to tax cuts and government spending.

The OECD left its forecast for US growth this year unchanged at 2.9pc, but trimmed the forecast for next year to 2.7pc, from 2.8pc previously.

It said that US import tariffs were beginning to have an impact on the world's biggest economy, estimating that those already imposed would lift overall U.S. prices 0.3pc to 0.4pc.

Particular products were even more affected, with US prices for washing machines jumping 20pc between March and July while US exports of cars to China were down nearly 40pc over one year.

Meanwhile, the OECD said that a weaker currency had so far helped China - which is not an OECD member - absorb the impact of US tariffs, leaving its growth forecasts unchanged at 6.7pc for this year and 6.4pc next year.

Rising US interest rates and a stronger US dollar spelled trouble for emerging market economies such as Argentina, Brazil and Turkey, the OECD said, slashing its forecasts for those three countries.

Reuters

Reuters

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