Pro­tec­tion­ism threat to in­vest­ment

Lack of ac­cel­er­a­tion in global growth, trade, pro­duc­tiv­ity and real wages, warns OECD

The Star Early Edition - - BUSINESS REPORT - Mark Deen

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

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