Global economy facing its worst year in a decade
Amid fears No Deal Brexit will trigger severe downturn in UK. ..
THE global economy is mired in its worst year for a decade as President Trump’s trade war wreaks havoc, experts warned.
A slump in car sales, surging oil prices and swingeing tariffs imposed by the US President have damaged performance, according to the National Institute Of Economic And Social Research (Niesr).
It is feared this dismal environment will mean the world economy expands by just 3.3pc this year – its slowest growth since the financial crisis was in full swing a decade ago. Niesr also warned there is a 25pc chance Britain has already entered a recession as the turmoil ahead of Brexit takes its toll.
The think-tank added that a No Deal departure from the European Union could trigger an even more protracted downturn. The gloomy outlook for the UK and the world is a major headache for Boris Johnson ahead of his expected victory in the Tory leadership campaign.
He has vowed to push Brexit through by the end of October come what may, raising the prospect of leaving without a deal in a move that could hit growth, jobs and tax receipts if the economy slows.
Niesr also sounded the alarm over the health of the global economy with Trump’s trade battle with China seen as a key cause of the slowdown.
The President has imposed punishing tariffs on £200bn of Chinese goods, and Beijing has responded in kind by targeting £88bn of US exports. As well as reducing trade between the two countries, this is also thought to have damaged confidence and made companies worldwide more wary, contributing to the gathering storm. Other problems include a surge in oil prices as the Opec cartel of fossil fuel-producing nations cuts output, forcing buyers to pay extra. The price of crude trebled from 2016 to late 2018, Niesr said.
When oil prices rise, the economy takes a hit because firms and consumers have to pay more for the fuel and therefore have less cash to spend elsewhere. The European car market has stumbled too, with sales slumping 7.9pc in June compared to a year earlier. This is partly because huge numbers of customers are abandoning diesel due to fears over the amount of pollution it causes.
Car manufacturing is hugely important to the European economy, supporting some 13.8m jobs or 6.1pc of all EU employment, according to the ACEA industry body. The damage done has been felt particularly keenly in Germany, where growth is expected to be just 0.5pc this year.
In the developing world, the collapse of Left-wing Venezuela’s economy and a currency crisis in Turkey have also caused damage.
And even the US is showing signs of struggling despite a boom inspired by Trump’s tax cuts.
The US Federal Reserve is expected to cut interest rates by 0.25 percentage points when it meets at the end of this month.
Trump pressed his case for a cut again last night on Twitter, saying: ‘ Our country is needlessly being forced to pay a much higher interest rate than other countries only because of a very misguided Federal Reserve.’
Niesr warned that growth will be lower in 2019 than the previous year as a result, and added the situation could yet be even worse than it predicts.
The think-tank said: ‘The global markets remain vulnerable to shocks in confidence or sentiment this year.’