OECD: Economic nationalism, volatility threaten modest recovery

A modest recovery under way in the global economy is at risk from economic nationalism and diverging central bank policies, the OECD said on Tuesday as it forecast only a slight pick-up in growth.

The Paris-based Organisation for Economic Cooperation and Development estimated global economic growth would run at 3.3% this year before reaching 3.6% in 2018, unchanged from its last estimates in November.

OECD chief economist Catherine Mann said higher interest rates in the US could unleash damaging volatility on financial markets for some borrowers while potentially pushing the dollar higher.

“The economic nationalism is a much bigger wildcard because we don’t know how the language translates into policy at this point,” Mann told Reuters as the OECD updated its outlook for major economies.

US President Donald Trump’s campaign promises last year to put “America first” in trade, and his calls for tariffs on imports from China and Mexico, caused consternation among the United States’ major trade partners.

Though Washington was not alone in using nationalistic rhetoric, Mann said the OECD had estimated that a 10% increase in US import costs would percolate through the economy and ultimately lift export costs by 15%.

The OECD said that with only a modest recovery in view in most countries, financial markets were becoming disconnected from economic reality as consumer spending and business investment remained weak.

With the US Federal Reserve widely expected to steadily hike interest rates for some time, the OECD said exchange rate swings could be expected.

That could put at risk emerging market borrowers who binged on cheap dollar loans in recent years, especially in countries with excessive levels of private sector debt, like China.