An escalating trade war is one of the only things standing in the way of the global economy growing at its fastest pace since 2010 this year and next, according to the influential Organisation for Economic Co-operation and Development (OECD).
The OECD predicts global GDP growth of 3.7 per cent in 2018 and 3.6 per cent in 2019, an uplift from its last predictions in November thanks to a pick-up in world trade as well as the short-term boost from US President Donald Trump’s fiscal stimulus.
However, the report also warned that “an escalation of trade tensions is a serious risk” following Trump’s decision to introduce tariffs on steel and aluminium imports.
Alvaro Pereira, the OECD’s acting chief economist, said: “US steel and aluminium tariffs will raise costs and harm consumers, while not solving the global overcapacity problem. Escalation of trade tensions would hurt the recovery.”
The UK is a notable outlier among the club of mainly rich nations which the OECD represents. The body forecasts growth will slump to 1.2 per cent over the course of this year and 1.1 per cent in 2019, as the UK leaves the EU.
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.
Pereira also warned against overstimulation of the economy, addressing fears that the US is opening the fiscal throttle at a time when its economy is accelerating towards its peak at the same time that “financial risks are also rising” as continued low interest rates encourage “greater risk-taking”.
The OECD also urged further structural reforms to make growth more inclusive, with per capita growth, which takes into account changes in population, still expected to “fall short of pre-crisis norms in the majority of OECD and non-OECD economies”.
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