OECD sees economic growth flounder as globalisation stalls

GLOBAL economic growth would flounder this year and next at rates not seen since the financial crisis as the march of globalisation grinds to a halt, the Organisation for Economic Co-operation and Development (OECD) warned yesterday.

Long a motor for the global economy, trade growth was set to lag growth in the broader world economy this year, the OECD said in an update of its main economic forecasts.

“This is well below past norms and implies that globalisation as measured by trade intensity may have stalled,” the Paris-based organisation said.

As a result, the OECD estimated the global economy would muster growth of only 2.9 percent this year, down from a forecast of 3 percent in its last estimates in June and the lowest rate since the global financial crisis of 2008/9.

Unravelling The OECD said many global supply chains that added economic value at each stage and were often rooted in China and other east Asian countries were unravelling as China sought to wean its economy off of exports for growth and some firms brought back production to their home countries.

A growing backlash against trade liberalisation, as well as recessions in some big commodity-producing countries were adding to the trade slowdown, which the OECD warned could erode already flagging productivity and thus ultimately living standards.

“If we could get back on track with the kind of trade growth that we had in the 1990s and 2000s, we would be able to return to productivity growth rates prior to the financial crisis,” OECD chief economist Catherine Mann said.

“Productivity has basically fallen by half since the financial crisis and that is a recipe for breaking promises to all of our citizens,” she said.

A backlash against trade has surged onto the political agenda of several countries facing elections in the coming months.

Mann said while voters could easily see losses from increased trade in the form of job cuts, the gains – lower prices for goods and more choice – were less visible.

With global growth seen picking up to only 3.2 percent next year – trimmed from 3.3 percent in June, Mann warned that would be too little to generate the jobs that youths expected and to respect pension promises to the elderly.

‘Across the board a 3% growth rate is insufficient to keep promises to citizens.’

“This is not a pretty picture for global growth,” Mann said.

“Across the board a 3 percent growth rate is insufficient to keep promises to citizens,” she added.

The OECD said growth in the US was in particular looking weaker than only a few months ago, forecasting growth in the world’s biggest economy at 1.4 percent this year, down from a forecast of 1.8 percent in June.

Although that would be the weakest growth since the financial crisis in 2009 and weaker than the euro zone’s 1.5 percent, the OECD said that the US Federal Reserve should go ahead with an interest rate hike of a quarter percentage point.

Next year, the OECD sees US growth picking up to 2.1 percent, down from 2.2 percent in its last forecasts from June. – Reuters