Global growth has peaked following escalating trade tensions, tightening fiscal conditions in emerging markets and political risks that could undermine strong and sustainable medium-term economic growth worldwide.
The OECD’s latest Interim Economic Outlook noted an intensification of risks, slightly weaker growth prospects than projected in May and diverging growth in different regions of the world.
According to the Paris-based organization, the global economy will grow by 3.7 percent in both 2018 and 2019, but with greater differences across countries compared to the broad-based growth last year.
As confidence has weakened, trade and investment growth have proven to be slower than anticipated. Although unemployment has fallen to levels last seen before the financial crisis across OECD countries, wage growth remained modest.
The OECD outlook noted a “worrisome slowdown in trade growth – combined with widespread political uncertainty” as the principal factor weighing on the world economy.
Further trade restrictions could thus have adverse effects on jobs and living standards, particularly for low-income households, the organization warned.
“Trade tensions are starting to bite and are already having adverse effects on confidence and investment plans,” said OECD Chief Economist Laurence Boone.
“Trade growth has stalled, restrictions are having marked sectoral effects and the level of uncertainty on trade stances remains high. It is urgent for countries to end the slide towards further protectionism, reinforce the global rules-based international trade system and boost international dialogue, which will provide business with the confidence to invest,” Ms. Boone said. “With tighter financial conditions creating stress on a number of emerging economies, especially Turkey and Argentina, a strong and stable policy framework will be key to avoid further turbulence,” she added.
The outlook calls on policymakers to enhance resilience, boost productivity and improve inclusiveness. Policy measures should address the root causes of financial market pressures, the OECD said, including excessive asset prices and public and private sector debt.
Policy measures are also needed to improve resilience to shocks in both emerging and advanced economies; steer fiscal policy toward measures that support long-term growth; and focus reforms on skills and labor market inclusion to improve opportunities for all.