Protectionist politics may undermine investment rebound, OECD cautions

The OECD warned world leaders that protectionist politics risk undermining an investment recovery that has the global economy improving without showing real acceleration.

World output is set to expand by 3.5 per cent this year — more than the 3.3 per cent predicted at the beginning of March and up from 3 per cent last year, the Paris-based Organization for Economic Cooperation and Development (OECD) said Wednesday in a report. The outlook for 2018 was unchanged at 3.6-per-cent growth.

“Investment has been a missing support for global growth, trade, productivity and real wages,” OECD chief economist Catherine Mann wrote in the report. While improving demand and strong competition policies are helping change that, “protectionist policies in G-20 countries and antiglobalization rhetoric” are creating “reservations” among investors.

Doubt about the benefits of world trade has moved from the margins to the centre of the global political conversation since voters put U.S. President Donald Trump in the White House and opted last year to pull Britain out of the European Union.

At a meeting in Sicily two weeks ago, Group of Seven leaders watered down their traditional defence of open markets at the behest of Trump, saying only that trade needs to be “free, fair and mutually beneficial.” They will resume the discussion at a meeting of the larger Group of 20 in Hamburg, Germany, in July.

The financial and economic consequences of the debate are potentially high.

“Geopolitical shocks and trade protectionism could catalyze snapbacks in asset prices and realize downside risks through a variety of channels,” Mann wrote. “Global equity prices have increased, reaching historic highs in the United States and Germany, despite little upward revision to GDP growth and inflation.”