Back in September, the OECD called for urgent action to address the myriad headwinds to the global economy, and while monetary policy continues to work towards bolstering growth using the increasingly limited ammo at its disposal, the situation remains troublesome.
On Thursday, the organization – whose tagline “Better policies for better lives” contrasts sharply with the Trump administration’s “Deranged jingoism for a miserable world” – reiterated its forecast of 2.9% growth for the global economy this year and trimmed next year’s outlook to 2.9% from 3% in the last update. Those are the weakest annual growth rates since the crisis.
“Trade conflict, weak business investment and persistent political uncertainty are weighing on the world economy and raising the risk of long-term stagnation”, the organization’s latest economic outlook reads.
Global GDP expanded 3.5% in 2018, and will grow 3% in 2021, the OECD projects.
“Bold action is needed to address both the high levels of uncertainty facing businesses as well as the fundamental changes taking place in the global economy”, the outlook implores.
Not surprisingly, trade conflicts take quite a bit of the blame for the deteriorating circumstances.
“Two years of escalating conflict over tariffs, principally between the US and China, has hit trade, is undermining business investment and is putting jobs at risk”, the organization chides, noting that while “household spending has been holding up, signs of it weakening are emerging. Car sales have declined sharply over the past year”.
Speaking Thursday from Beijing where he met with Chinese Premier Li Keqiang (as well as World Bank President David Malpass, IMF Managing Director Kristalina Georgieva and WTO Deputy Director-General Alan Wolff), OECD Secretary-General Angel Gurría delivered the following warning:
The alarm bells are ringing loud and clear. Unless governments take decisive action to help boost investment, adapt their economies to the challenges of our time and build an open, fair and rules-based trading system, we are heading for a long-term future of low growth and declining living standards.
For the US, the growth outlook is broadly positive, especially in the context of other developed economies, but the trajectory isn’t exactly “great” (“again” or otherwise).
As for China, growth is seen slowing to just 5.5% over the next two years. “China is rebalancing away from a reliance on exports and manufacturing towards consumption and services [and its] traditional contribution to global trade growth is set to slow and change in nature”, the OECD cautions.
Recent data out of Beijing continues to paint a somewhat disconcerting picture, and surging consumer prices (thanks to pork) are complicating the decision calculus for the PBoC. Rising inflation notwithstanding, monetary policy is responding. China lowered rates across the curve this month, delivering token 5bps cuts to the 7-day repo rate, the one-year MLF rate and both LPR tenors.
Naturally, the OECD places quite a bit of emphasis on the need for cooperation and multilateral solutions to the world’s most vexing issues.
“While the fragility of the world economy can be blamed in large part on deliberate policy decisions, it also reflects deeper, structural changes”, the outlook reads.
The organization notes that “digitalisation is transforming business models while climate and demographic changes are already disrupting existing patterns of activity”.
Ultimately, the message is always the same – the sooner the world comes to its senses and pivots back away from pernicious nationalism and isolationism, the sooner things can get back on track. Until then, it’s going to be a slow, steady grind towards stagnation.