OECD Sees Better Outlook, if Trade Escalation Avoided

REUTERS

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The Organization for Economic Cooperation and Development on Tuesday raised its forecasts for the global economy for 2018 and 2019, factoring in the impact of tax cuts and spending in the United States.

Global economic growth accelerated previous year as higher investment and falling unemployment drove pickups in most major economies.

Rebounding global business investment would keep global trade growth at about 5 percent this year, the OECD forecast.

"Growth is steady or improving in most G20 countries and the expansion is continuing", said OECD acting chief Economist Alvaro Pereira, "[But] an escalation of trade tensions would be damaging for growth and jobs". Trade protectionism, however, remains a "key risk" to the world economy, according to the report.

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The OECD predicts the fastest world growth since 2011 this year, helped by USA tax cuts and spending in Germany.

However, it said the global economy was vulnerable to an eruption of trade tensions after the Trump administration imposed import tariffs on steel and aluminum, a move that is expected to prompt retaliation from Europe and others.

The UK will be the slowest-growing economy in the G20 barring South Africa if the OECD's predictions come through, with growth well behind the 2.2 per cent average expected in the Eurozone or the 2.5 per cent annual expansion in the US.

This is up from a forecast last November of 3.7% in 2018 and 3.6% in 2019.

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For South Africa, the OECD has revised the expected GDP growth rate upward to 1.9% in 2018, and 2.1% in 2019 - higher than the growth rate now targeted by National Treasury.

"The world economy will continue to strengthen over the next two years", the OECD said. "Governments of steel-producing economies should avoid escalation and rely on global solutions".

"Safeguarding the rules-based worldwide trading system is essential to prevent the longer-term harm to growth prospects that could arise from a retreat from open markets", it said.

President Emmanuel Macron's social welfare, tax and labor market reforms would help France narrow the gap with Germany, with growth forecast at an 11-year high of 2.2 percent (+0.4) before easing to 1.9 percent in 2019 (+0.2).

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