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Protectionism and trade disputes threaten world growth, says OECD www.theguardian.com
A new wave of protectionism and trade tensions risks denting global growth, stoking inflation and harming living standards, the west’s leading economic thinktank has warned in its first in-depth forecasts since Donald Trump won the US election on an anti-globalisation platform.
The Paris-based Organisation for Economic Co-operation and Development (OECD) said it was optimistic that expected spending measures and tax cuts under the new US administration would boost growth there and in other countries. But it said global trade growth was already “exceptionally weak” and jobs would suffer if politicians rolled back the clock on trade liberalisation.
The thinktank warned of an uncertain outlook for the UK and its trading partners as Brexit negotiations began. It nudged up its forecasts for UK growth next year but still predicted the weakest performance since the recession and a further slowdown in 2018.
The OECD used its quarterly forecasts to urge governments to use low borrowing costs to invest and enact structural reforms. The group reprised a warning to politicians not to over-rely on central banks to drive the recovery with monetary policies, such as low interest rates and electronic money-printing programmes.
It forecast that, after averaging 3.9% growth over the decade to 2013, global growth would be 2.9% this year then edge up to 3.3% in 2017 and 3.6% in 2018.
“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.”
The OECD said global trade growth had collapsed and the prospects of only a modest recovery over coming years suggested globalisation “may now be close to stalling”.
The report did not specifically name Trump or any other politicians around the world who have tapped into disillusionment over the spoils of globalisation appearing to be unfairly distributed. But it did warn generally on the potential perils of protectionism.
OECD researchers analysed global growth prospects under different trade conditions and forecast a significant blow from rolling back the trade liberalisation seen over the last 15 years.
“The global loss in GDP would be about 1.3%, but for the countries that impose the restriction, in other words, the US, China and the EU, the loss in their GDP would be closer to 2%,” said Mann.
“The countries that impose the restrictions damage themselves more.”
The report noted that more than 25% of jobs depend on foreign demand in many of the 35 countries in the OECD group.
“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 wellbeing for many others,” the report said.
The warning comes days after the US president-elect announced his intention to pull out of the Trans-Pacific Partnership trade deal.
Mann said the solution for countries like the US, where voters have voiced their frustration at how globalisation has apparently weighed on 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.
On the tax and spending side, the OECD’s forecasters said they expected stimulus measures from the US government would raise US GDP growth by around 0.4 percentage points in 2017 and around 0.8 percentage points in 2018. US growth was expected to pick up next year and quicken again in 2018.
At its last forecasts in September, the OECD backtracked on its earlier warning that the UK would suffer instant damage from the Brexit vote. In this new outlook, the thinktank forecast UK GDP would have grown 2.0% this year, a touch higher than the 1.8% it predicted in September.
The forecast for next year was lifted to 1.2% from 1% in September. But that would still be the weakest growth since the depths of the global financial crisis in 2009 and is slower than the 1.4% forecast by the Bank of England and the government’s fiscal watchdog, the Office for Budget Responsibility.
An OECD forecast for 2018 showed economic growth slowing to just 1% and the thinktank warned of higher inflation on the back of a weaker pound.
It noted Philip Hammond’s move in last week’s autumn statement to abandon the strict borrowing rules of his predecessor, George Osborne, but urged the chancellor to go further. “A more significant increase in public investment would support demand in the near term and boost supply in the longer term.”
The thinktank also urged “caution” from the government over plans to raise the “national living wage” over coming years, warning it could backfire and hurt workers by increasing unemployment.
“The effects on employment need to be carefully assessed before any further increases are adopted, especially as growth slows and labour markets weaken.”
Published Date:2016-11-29
