Global economy heading to fragile soft landing – OECD
Trade tensions and higher interest rates are slowing the global economy, though for now there are no signs of a sharp downturn, the Organisation for Economic Cooperation and Development (OECD) said yesterday, lowering its outlook for next year.
The OECD forecast that global growth would slow from 3.7 per cent this year to 3.5 per cent in 2019 and 2020. It had previously projected 3.7 per cent for 2019.
The global growth slowdown would be worst in non-OECD countries, with many emergingmarket economies likely to see capital outflows as the US Federal Reserve gradually raised interest rates.
OECD cut its outlook for countries at risk such as Brazil, Russia, Turkey and South Africa.
Rising interest rates could also spur financial markets to reconsider and thus reprise the risks to which investors are exposed, triggering a volatility, OECD said.
“We’re returning to the longterm trend. We’re not expecting a hard landing, however, there are a lot of risks. A soft landing return to is always difficult,” OECD chief economist Laurence Boone told Reuters in an interview.
“This time it is more challenging than usual because of the trade tensions and because of capital flows from emerging markets to countries normalizing monetary policy,” she added.
A full-blown trade war and the resulting economic uncertainty could knock as much as 0.8 per cent off global gross domestic product by 2021, the OECD calculated. Though at the source of the current tensions, the US economy, was expected to fare better than most other major economies albeit because of costly fiscal stimulus.
The OECD left its forecasts for the United States in 2018 and 2019 unchanged, projecting growth in the world’s biggest economy will slow from nearly 3.0 this year to slightly more than 2.0 per cent in 2020 as the impact of tax cuts waned and higher tariffs added to business costs.
Trimming its outlook for China, OECD forecast the country’s growth would slow from 6.6 per cent to a 30-year low of 6.0 per cent in 2020 as authorities tried to engineer a soft landing in the face of higher US tariffs.