Trade war caveat added to outlook
‘Protectionism remains a key risk that would negatively affect confidence,’ OECD warns
PARIS — 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.
But its brighter global 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. “Governments of steel-producing economies should avoid escalation and rely on global solutions.”
A full-blown trade war could cost the global economy $470 billion by 2020, according to analysis by Bloomberg Economics. That hit is based on an extreme scenario of levies, but one that BE says is “no longer an impossible one.”
On its latest forecasts, the OECD said “stronger investment, the rebound in global trade and higher employment are helping to make the recovery increasingly broad-based.”
It said that 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.