Daily Management Review

OECD sharply lowers growth rate evaluations for large economies


The U.S.-China trade war slowed the global economy to a minimum of ten years, the Organization for Economic Co-operation and Development (OECD) said, cutting record forecasts for 2019 and 2020. The review touched on almost all the G20 countries, from the US to Saudi Arabia and Russia. This is the most significant change in macro forecasts by international organizations in recent months. In addition to a drop in trade turnover, the slowdown is indicated by a decrease in demand for capital goods and a decrease in investment growth, the OECD notes.

According to an updated OECD forecast, global economic growth in 2019 will be minimal since the 2008–2009 crisis, slowing from 3.6% in 2018 to 2.9%. The rating was lowered by 0.3 percentage points (pp) compared with the May forecast. In 2020, global GDP will grow by only 3% (a decrease of 0.4 percentage points). “Prospects are becoming more unstable and uncertain, trade disputes put pressure on investor confidence, which threatens future growth, differences can cost the world economy 0.3-0.4 pp growth in 2020 and 0.2-0.3 pp p. in 2021,” the OECD estimates.

In particular, industrial production indices in developed countries indicate a slowdown as a reduction in export orders in two-thirds of countries affected output.

Global trade stopped growing at the end of 2018 and is now shrinking. Higher tariffs are hindering the construction of effective value chains and reduce productivity. Expectations of a slowdown in growth will lead to a reduction in investment - the average growth rate of capital investment in the G20 countries in the first half of the year slowed to 1% compared to 5% at the beginning of 2018.

Among the G20 countries, the maximum forecast correction affected India (minus 1.3 pp, up to 5.9%), Mexico (minus 1.1 pp, up to 0.5%), Argentina (minus 0.9 p p.p., up to 2.7%) and Saudi Arabia (minus 1 p.p., up to 1.5%).

For the USA, the forecast was lowered from 2.8% to 2.4% for 2019 and from 2.3% to 2% for 2020. The OECD notes that although the US Federal Reserve rates cuts partly compensates for the negative impact of external factors, its impact will be "modest". In the euro area, growth rates will fluctuate around 1% in 2019 and 2020 with a noticeable weakening in Germany and Italy, depending on external demand.

Another factor of uncertainty is Brexit: the absence of a deal will push the British economy into recession and slow down growth in the EU.

A slowdown in the PRC economy will be gradual, but the risks of continued extremely weak external demand and a sharp slowdown in growth are increasing. In 2019, the OECD expects China's economy to grow at 6.1% (forecast reduced by 0.1 percentage points), but already in 2020 it will slow down to 5.7% (minus 0.3 percentage points). This is lower than official forecasts of 6-6.5%. China's imports have already declined markedly over the year, and a fall of 2 pp in GDP growth will be equivalent to a 0.7% slowdown in world growth, the authors of the report warn.

source: oecd.org