OECD raises global outlook, warns against ‘trade tensions’

Broad-based economic expansion is accelerating thanks to “robust” investment growth and increases in international trade, but risks remain in the form of rising trade tensions, according to the Organisation for Economic Cooperation and Development (OECD).    A broad-based global economic expansion is expected to accelerate this year and next, but risks remain in the form of rising trade tensions, according to the Organisation for Economic Cooperation and Development’s (OECD) latest Interim Economic Outlook.
   The OECD raised its projections for global economic growth in 2018 and 2019 to 3.9 percent each, the highest since 2011 and 0.3 percentage points higher than the group’s previous estimate, published in November 2017.
   The organization attributed the acceleration in economic output primarily to “robust” investment growth, increases in international trade and higher employment rates, but warned that “tensions are appearing that could threaten strong and sustainable medium-term growth.”
   Those tensions are a direct reference to recently announced tariffs of 25 percent and 10 percent, respectively, on imports of steel and aluminum to the United States. Several U.S. trading partners have already voiced their opposition to the measures and some, most notably the European Union, have vowed to retaliate if they go through.
   “Growth is steady or improving in most G20 countries and the expansion is continuing,” said OECD Acting Chief Economist Alvaro Pereira. “In this environment, an escalation of trade tensions would be damaging for growth and jobs.”
   Pereira said that rather than resorting to a tit-for-tat tariff war, “Countries should rely on collective solutions like the Global Forum on Steel Excess Capacity to address specific issues. Safeguarding the rules-based international trading system is key.”
   U.S. President Donald Trump ordered the tariffs pursuant to Commerce Department investigations into the national security impacts of steel and aluminum imports under Section 232 of the Trade Expansion Act of 1962, but close military allies like the EU and Japan, as well as Canada, which has already been granted an exemption pending the outcome of NAFTA renegotiations, have questioned whether the tariffs are truly motivated by national security concerns.
   Even within the U.S. legislature, opinions appear split on the matter.
   Sen. Jeff Flake, R-Ariz., on Monday introduced legislation that would block the tariffs from taking effect, but the consensus from Capitol Hill analysts seems to be that the bill lacks the necessary political support to survive a full vote in Congress and surpass the threshold for a presidential veto.
   In its outlook, the OECD projects economic growth in the United States to reach a 2.9 percent rate this year—up from 2.3 percent in 2017—before slowing slightly to 2.8 percent annual growth in 2019, thanks primarily to the short-term positive impact of new tax reductions and related expected spending increases. Trump in December signed the Tax and Jobs Act into law, lowering the effective federal tax rate on U.S.-based corporations from 35 percent to 21 percent.
   Growth in other developed economies like the EU, United Kingdom, Japan, Australia and Canada are all forecast to slow from their 2017 rates, but will remain above 2 percent, with the exception of the Japan, where growth is expected to slow from 1.7 percent last year to 1.5 percent in 2018 and 1.3 percent in 2019, and the UK, where growth will slow from 1.7 percent to 1.3 percent and 1.1 percent, respectively.
   In developing economies, results were more mixed. Economic growth in China, for example, is expected to slow from 6.9 percent last year to 6.7 percent in 2018 and 6.5 percent in 2019, while India is expected to see a continued acceleration in economic growth from 6.6 percent in 2017 to 7.2 percent and 7.5 percent this year and next, according to the OECD.