Protectionism threat to investment
Lack of acceleration in global growth, trade, productivity and real wages, warns OECD
THE Organisation for Economic Co-operation and Development (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 percent this year – more than the 3.3 percent predicted at the beginning of March and up from 3 percent last year, the Paris-based OECD said yesterday in a report. The outlook for 2018 was unchanged at 3.6 percent growth.
“Investment has been a missing support for global growth, trade, productivity and real wages,” OECD Chief Economist Catherine Mann wrote. While improving demand and strong competition policies are helping change that, “protectionist policies in G20 countries and anti-globalisation 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 Donald Trump in the White House and opted last year to pull Britain out of the EU.
At a meeting in Sicily two weeks ago, G7 leaders watered down their traditional defence of open markets at the behest of President Trump, saying only that trade needs to be “free, fair and mutually beneficial.”
They will resume the discussion at a meeting of the larger G20 in Hamburg in July.
The financial and economic consequences of the debate are potentially high.
“Geopolitical shocks and trade protectionism could catalyse snap-backs in asset prices and realise downside risks through a variety of channels,” Mann wrote.
“Global equity prices have increased, reaching historic highs in the US and Germany, despite little upward revision to gross domestic product (GDP) growth and inflation.”
The S&P’s 500 Index of US equities was up 15 percent in the past year. Germany’s DAX index is up 23 percent.
US GDP, meanwhile, is set to expand 2.1 percent this year and 2.4 percent in 2018, the OECD said yesterday. That compares with forecasts of 2.4 percent and 2.8 percent growth made by the organisation at the beginning of March.
Euro-area growth is seen as even more tepid at 1.8 percent both this year and next, according to a report. That compares with 1.6 percent predicted in early March.
“Monetary policy is appropriately moving toward a more neutral stance in the US,” while central banks in Europe and Japan are using forward guidance, Mann said. – Bloomberg