Daily Management Review

OECD lowers global economic forecast


In the next two years, the world economy will grow more slowly than recently expected, follows from the updated forecast of the Organization for Economic Development and Cooperation (OECD). According to the organization, among the main risks for growth are increased trade protectionism (this time with respect to car imports in the United States), a slowdown in China’s GDP growth below the official benchmarks, and the UK’s exit from the European Union without any agreement.

The growth rates of the global economy will be weaker than previously expected. They will be only 3.3% this year and 3.4% next year, says the updated macro forecast OECD. Compared to November 2018, the estimate was reduced by 0.2 percentage points (pp) in 2019 and by 0.1 pp to 2020. The reasons for lowering the forecast are the high uncertainty of the actions of regulators, the ongoing trade disputes and the decrease in business and consumer confidence indices. At the end of last year, global growth has already slowed to around 3%, according to the OECD.

Estimates for almost all G20 countries were revised.

The forecast for the euro zone was revised downwards: immediately by 0.8 pp (up to 1%) for this year and by 0.4 pp (up to 1.2%) for the next (last year the growth of Eurozone economies accounted for 1.8%). In particular, the estimate for Germany has been more than halved (to 0.7% for 2019), while in Italy a recession is expected to continue (technically, it was recorded following the results of the third and fourth quarters).

Also, the OECD warns about the risks of Brexit without an agreement. This will dramatically increase costs for all parties. The British economy will grow this year only by 0.8% in case of the soft option (the forecast is reduced by 0.6 percentage points). If tariffs for trade with the EU grow, the losses may amount to up to 2% of GDP.

The forecast for the USA is left almost unchanged - minus 0.1 pp, up to 2.6%, for 2019, but plus 0.1 pp, up to 2.2%, for 2020th. At the same time, growth in China should drop to 6.2% this year and to 6% in 2020. The OECD believes that a 2 pp reduction in the growth rate of domestic demand in this country will be equivalent to a 0.4 pp deceleration of global GDP. Recall, by the end of 2018, China’s GDP increased by 6.6%. However, the official growth target for 2019 was set in a wide range - from 6% to 6.5%. Authorities of this country will have to reimburse stimulating measures to lessen the negative effect of the trade war. Some of them have already been announced by Li Keqiang of the PRC State Council. For the time being, these are mainly fiscal benefits like tax cuts and increased borrowing for infrastructure projects.

The report’s authors warn that the increase in the turnover of world trade has already dropped significantly - to 4% in 2018 against 5.25% in 2017.

Indicators of export show decline in China, in other Asian economies, and in Europe. Even in case of successful completion of the negotiations between the USA and China (this should prevent the increase in the rates of already existing duties and cancel protective measures) there are risks of increasing tariffs on importing cars and auto parts to the USA (they may also touch EU exports). In addition, the OECD indicate a possible increase in financial risks, in particular, the debt burden, although they acknowledge that stopping the tightening of monetary policy by the Fed has eased the situation in the markets. 

source: oecd.org

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