OECD says we're seeing the end of globalisation
A collapse in trade growth suggests that globalisation may be stalling and is contributing to a stagnation in world economic output, the Organization for Economic Cooperation and Development (OECD) said.
The OECD trimmed its global growth forecasts by 0.1 point for this year and next to 2.9pc and 3.2pc, respectively.
The volume of world trade declined in the first quarter and will fall short of overall output growth in the full year, the Paris-based organisation said yesterday in a report.
With Republican presidential candidate Donald Trump threatening to slap tariffs on Chinese imports and contenders for France's 2017 presidential election advocating protectionism, the OECD warned that a key driver of prosperity in recent decades is increasingly under threat.
Stalled trade deals, including largely abandoned World Trade Organisation talks, and the failure of even the US and Europe to secure a free trade deal in the form of the Transatlantic Trade and Investment Partnership, mean big moves on global trade have slowed in recent decades, in particular in the wake of the global financial crisis.
"Trade growth rates have deteriorated dramatically since the financial crisis," OECD chief economist Catherine Mann said in an interview.
"Some people might say this is a good thing. No, this is damaging and it shows up as a decline in productivity growth."
Increasing trade fuelled the expansion of the world economy between the mid-1980s and the mid-1990s, with trade growing at more than twice the pace of global output by the end of the final decade of the last century.
Since the 2008 financial crisis, policy makers have struggled to revive both trade and growth.
The OECD warned yesterday that the expansions in developed economies are weakening as major emerging market commodity producers show only a "gradual improvement".
The US economy, the world's largest, is now expected to grow just 1.4pc this year, down from the 1.8pc predicted in June, according to the report.
The euro-area forecast was cut by 0.1 point to 1.5pc and the outlook for Japan was lowered 0.1 point to 0.6pc.
The OECD also reduced its prediction for the UK's 2017 economic output by 1 percentage point to 1pc following the country's vote to exit the European Union.
"Erosion of trade in some ways is death by a thousand cuts with protectionism encroaching here and there," Ms Mann said.
"If we could get global trade back on track, we would be able to recover something."
For Ireland, the OECD said the Government should refrain from using its improved financial situation to further stimulate the economy, according to a leading economic think-thank.
It added that it expects the Irish economy to remain "robust for the remainder of this year and next year.
The OECD said that investment and exports will remain solid and support strong employment growth.
The OECD said any windfalls attained from low interest rates and improved government revenues should be used towards paying off the national debt. (Bloomberg)