An OCED report published on November 21 suggests that the global economy is decelerating, mainly as a result of trade wars and rising interest rates.
The 2019 outlook has been revised from 3.7 to 3.5%, that is, a resolute but not steep downturn.
The Paris-based club of the world’s most developed economies suggests that the downturn may be worse for specific economies with the main concern centred on emerging and highly dollarised economies that are heavily dependent on direct foreign investment.
During the period of the ultra-low interest rate policy of the US Federal Reserve, funds seeking higher yields flew into Turkey, Brazil, South Africa, and Russia. The outward flow is now putting excessive pressure on these economies, thus triggering a return to volatility.
The rising interest rates have spurred financial markets to reconsider and reprice the risks to which investors are exposed, the OECD report argues.
Among mature economies, the Eurozone expects to see a major downturn from 2% in 2018-9 to 1.6% in 2020. Within the Eurozone, the Italian economy is seen as underperforming and is projected to remain stagnant with growth at 1% in 2018-2019 and 0.9% in 2020.
The UK’s growth may actually pick up pace, due to a less austere budget, from 1,2% projected in September to 1,3%. However, growth could significantly decelerate from 1,4 to 1,1 per cent due to Brexit, the OECD projects.
The OECD left its forecasts for the US in 2018 and 2019 unchanged, projecting growth in the world’s biggest economy would slow from nearly 3.0% this year to slightly more than 2.0% in 2020. Similarly, China’s growth will drop to a 30-year low from 6.6% in 2018 to 6% in 2020 as the Chinese look for a way to counter the US’ new trade tariffs.
As part of its annual estimate, the OECD said that a full-blown trade war could cost the global economy 0.8% in global growth by 2021.