OECD lifts global growth forecast despite protectionism risks

The OECD has forecast future improvements for the global economy following Donald Trump’s election but also warns of risks that may come alongside his anti-globalisation outlook.

OECD provides insight about global growth predictions
Prospects for the global economy have improved following the election of Donald Trump, according to the latest forecast from the Organisation for Economic Cooperation and Development (OECD).

Fastest growth since 2011

The president-elect's proposals for fiscal stimulus has resulted in the Paris-based think-tank lifting its prediction for growth in global GDP by 0.1 per cent to 3.3 per cent next year, and to 3.6 per cent in 2018 – the fastest rate of growth since 2011. However, the OECD also warns of risks associated with Mr Trump's election on an anti-globalisation programme, saying that this could be a manifestation of a worldwide trend towards protectionism and trade tensions that could dent global growth, increase inflation and adversely affect living standards.As it stands, though, the organisation believes plans to boost the US economy could stimulate major economies, with American GDP now expected to grow 2.3 per cent in 2017 and three per cent in 2018. Growth in China is expected to rise 6.4 and 6.1 per cent in the next two years, while the euro area is predicted to grow 1.6 per cent in 2017 and 1.7 per cent the following year. Figures for Japan are one per cent growth next year and 0.8 per cent in 2018.

Raised GDP predictions for 2016/17

The OECD for the forecast for the UK has also been upgraded following a gloomy prediction in the wake of the referendum vote to leave the European Union in June's referendum. The organisation now believes the nation's GDP will have grown 2.0 per cent this year (up from 1.8 per cent) while the forecast for 2017 has been raised from 1.0 to 1.2 per cent, although that will still represent the UK's slowest growth since the financial crisis and is below the 1.4 per cent predicted by the Bank of England.For 2018, the OECD is forecasting UK growth of just one per cent on the back of rising inflation and a weaker pound. 

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Global trade growth still "exceptionally weak"

Overall, the report said global trade growth remained "exceptionally weak" and would be vulnerable if politicians rolled back the clock on trade liberalisation. It urged governments to use low borrowing costs to invest and not to be overly-reliant on central banks' monetary policies to drive growth."Almost a decade after the outbreak of the financial crisis, the global economy remains in a low-growth trap with weak investment, trade, productivity and wage growth and rising inequality in some countries," said Catherine Mann, the OECD’s chief economist."Monetary policy is overburdened, leading to growing financial risks and distortions. Alongside structural reforms, a stronger fiscal policy response is needed to boost near-term growth and strengthen long-term prospects for inclusive growth." 

Protectionist trade policies could be damaging

The report noted that more than a quarter of jobs in many of the 35 nations with OECD membership depend on foreign demand and that countries tempted to impose protectionist trade policies could end up damaging themselves more than they protected jobs.Ms Mann added, "This economic outlook suggests that protectionism and inevitable trade retaliation would offset much of the effects of the fiscal initiatives on domestic and global growth, raise prices, harm living standards, and leave countries in a worsened fiscal position. Trade protectionism shelters some jobs, but worsens prospects and lowers well-being for many others." She said the solution for countries such as the US, where voters have shown their frustration at how globalisation has apparently affected wages and job creation, was to use domestic policies to ensure the gains from trade were shared better. "What we know about trade is it expands the pie. Now the problem with trade has been the distribution of the gains from trade and this has always been known and the fabric of domestic policies has not addressed that," she said.

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