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World economy to slow down in 2019 due to rising trade and financial risks, OECD says

posted onDecember 17, 2018

Just ahead of the New Year 2019, experts express concern about the world economic outlook as a series of challenges lay ahead.

The Organisation for Economic Cooperation and Development (OECD) says world growth is past its peak and faces risks from trade tensions and higher interest rates.

"The global economy is navigating rough seas," OECD Chief Economist Laurence Boone said. "Global GDP growth is strong but has peaked." 

The Paris-based economic watchdog in its latest economic outlook report cut its 2019 world growth forecast to 3.5 percent from 3.7 percent as predicted earlier. 

Presenting the Outlook, OECD Secretary-General Angel Gurría said: “Trade conflicts and political uncertainty are adding to the difficulties governments face in ensuring that economic growth remains strong, sustainable and inclusive.” 

The report also warned that if the United States were to hike tariffs to 25 percent on all Chinese imports, the world economic growth could fall to around 3 percent in 2020.

Washington has raised tariffs on $250 billion of goods imported from China under President Donald Trump’s “America First” agenda, and threatened to levy duties on the remaining $260 billion. Beijing has retaliated with tariffs on $110 billion of U.S. imports. 


(Source: OECD)

The growth slowdown is expected to be worst in non-OECD countries, as higher interest rates and an appreciating US dollar have resulted in an outflow of capital from emerging economies and are weakening their currencies. 

"The shakier outlook in 2019 reflects deteriorating prospects, principally in emerging markets such as Turkey, Argentina and Brazil, while the further slowdown in 2020 is more a reflection of developments in advanced economies as slower trade and lower fiscal and monetary support take their toll," the report read. 

Rising interest rates dampen in investment and could also spur financial markets to reconsider and thus reprice the risks to which investors are exposed, triggering a return to volatility, the inter-governmental organisation said. 

"We're returning to the long-term trend. We're not expecting a hard landing, however, there's a lot of risks. A soft landing is always difficult,"  Boone told Reuters in an interview. "This time it is more challenging than usual because of the trade tensions and because of capital flows from emerging markets to countries normalising monetary policy,"  Boone added. 

Projections by country

The west’s leading economic thinktank kept its forecasts for the world's biggest economy  unchanged with an expected growth rate of 2.9 percent in 2018, 2.7 percent in 2019 and 2.1 percent in 2020, with business investment being underpinned by Trump’s recent tax reform.

Growth forecasts for China were slightly lowered to 6.6 percent for this year, 6.3 percent for the next and a 30-year low of 6.0 percent for 2020, as exports and infrastructure grow slower.

Japan, the world’s third largest economy, is expected to grow 0.9 percent this year, 1 pecent in 2019 and 0.7 pecent in 2020.

The eurozone is seen expanding 1.9 percent this year, 1.8 percent in 2019 and 1.6 percent in 2020, as the organisation slightly cut its growth forecasts for the bloc despite efforts by European central bankers to boost growth with low interest rates. 

Prognosis for Great Britain, engaged in Brexit talks, has been rather stable — the UK GDP growth would pick up from 1.3 percent this year to 1.4 percent in 2019. In 2020 it is expected to be at 1.1 percent.

If in 2018 the world underwent many fluctuations, in 2019 the world economic and political situation is forecast to be even more complicated and unpredictable. A special chapter in the Outlook shows how, as digitalisation spreads, the divide between high-skill, low-routine jobs and low-skill, high-routine work continues to grow, posing the risk of further widening inequalities. 


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