Trump’s stimulus to spur global growth

OECD lifts worldwide forecast

THE ORGANISATION for Economic Co-operation and Development (OECD) lifted its global growth forecasts for next year and predicted expansion in 2018 would reach its fastest pace in half a decade as Donald Trump’s planned fiscal stimulus provided a boost to major economies.

World gross domestic product (GDP) would now expand 3.3 percent next year, up by 0.1percentage point from September’s forecast, the OECD said in a semi-annual report. It saw the global economy expanding 3.6 percent in 2018, the fastest pace since 2011.

The Standard and Poor’s 500 Index has risen to a record high and bond yields have increased since Trump won the US election on November 8.

Tax cuts The president-elect’s promises of spending on infrastructure as well as tax cuts should lift US demand, spurring investment and boosting overall output once he took office in January, that should also spill over into the rest of the world, according to the OECD.

“In the aftermath of the US elections, there is… expectation of a significant change in direction for macroeconomic policy,” the OECD said. “The boost to US final demand also strengthens import growth” and “the stimulus boosts global GDP growth by around 0.1 percentage point in 2017 and 0.3percentage point in 2018.”

Forecasts increased for all major economies next year.

The US itself will grow 2.3percent next year and 3percent in 2018, while the euro area will expand 1.6 percent and 1.7 percent, respectively, the OECD predicted.

The organisation urged other governments to consider the same fiscal medicine.

“For the last five years the global economy has been in a low growth trap,” said OECD’s chief economist, Catherine Mann. Exiting this “depends on policy choices beyond those of monetary authorities”.

In Mann’s view, debt burdens were stabilising and interest rates remained low, providing a window of opportunity for stimulus now that would actually lower borrowing as a percentage of GDP.

The OECD said Japan’s economy would grow 1percent next year before slowing to a 0.8 percent expansion in 2018.

A rebound in international trade would help drive Japan’s export growth higher over the next two years, supporting business investment as fiscal stimulus faded, the OECD said.

“With stronger exports, and the capacity shortages and high profits, we expect that business investment will also get stronger in the next few years,” said Randall Jones, the head of the OECD’s Japan-Korea desk.

The Japanese government forecast growth of 1.2percent for next year and 1.9 percent the following year, according to documents released in July.

“External risks are largely to the downside, given uncertainty about China, which accounts for a quarter of Japanese exports,” the OECD said in its report. – Bloomberg

3.3% OECD says world GDP will expand this much next year