OECD adds major caveats to bullish global outlook

The global economy will grow close to four per cent this year and next, better than previously anticipated, according to the OECD, which added a warning that a trade war could roll back the gains seen in recent years.

Upgrading its forecasts, the Paris-based group in part cited U.S. tax cuts for the better numbers. It sees the world economy expanding 3.9 per cent in both 2018 and 2019, the strongest since 2011. That’s up from 3.7 per cent and 3.6 per cent respectively compared with its November projections.

The OECD says it now expects the Canadian economy to grow 2.2 per cent this year, up from an earlier prediction of 2.1 per cent. It also raised its Canadian growth outlook for next year to 2.0 per cent compared with its forecast in November for 1.9 per cent.

The OECD says the revised outlook compares with growth of 3.0 per cent last year in Canada.

But its outlook came with a major caveat in the wake of the U.S. decision to slap import tariffs on steel and aluminum and the threat of retaliation by China, the European Union and others. The OECD, which groups 35 developed economies, called on the world’s major nations to avoid a dispute that could impede trade, demand, competition and, ultimately, the health of the global economy.

“Trade protectionism remains a key risk that would negatively affect confidence, investment and jobs,” it said on Tuesday.

On its latest forecasts, the OECD said “stronger investment, the rebound in global trade and higher employment are helping to make the recovery increasingly broadbased.”

It said the tax cuts in the U.S. will boost business investment and could add as much as 0.75 percentage point to growth this year and next in the world’s largest economy. The outlook for 2018 U.S. expansion was upgraded to 2.9 per cent from 2.5 per cent, and the euro area was lifted to 2.3 per cent from 2.1 per cent. The better global growth will be accompanied by a “modest” pickup in inflation, it said.

The OECD warned of risks linked to the Group of 20 nations’ total debt amounting to over 200 per cent of economic output, and stock valuations being at their highest since the early part of the century. It also sees “tensions” as monetary policy normalizes.

Growing inequality was also highlighted in the report.