Reuters – September 19, 2019
PARIS: The trade war between the United States and China has plunged global growth to its lowest levels in a decade, the Organisation for Economic Cooperation and Development (OECD) said on Thursday as it slashed its forecasts.
The OECD said that the global economy risked entering a new, lasting low-growth phase if governments continued to dither over how to respond. The global economy will see its weakest growth since the 2008-2009 financial crisis this year, slowing from 3.6% last year to 2.9% this year before a predicted 3% in 2020, the OECD said.
The Paris-based policy forum said the outlook had taken a turn for the worse since it last updated its forecasts in May, when it estimated the global economy would grow 3.2% this year and 3.4% in 2020. “What looked like temporary trade tensions are turning into a long-lasting new state of trade relationships,” OECD Chief Economist Laurence Boone told Reuters.
“The global order that regulated trade is gone and we are in a new era of less certain, more bilateral and sometimes assertive trade relations,” she added. Trade growth, which had been the motor of the global recovery after the financial crisis, had fallen from 5% in 2017 into negative territory now, Boone said.
Meanwhile, trade tensions have weighed on business confidence, knocking investment growth down from 4% two years ago to only 1%. Boone said that there was evidence that the trade standoff was taking its toll on the US economy, hitting some manufactured products and triggering farm bankruptcies.
The world’s biggest economy would grow 2.4% this year and 2% next year instead of the 2.8% and 2.3% respectively that the OECD had forecast in May.
China would also feel the pain with the second-biggest economy growing 6.1% in 2019 and 5.7% in 2020, outlooks the OECD cut from 6.2% and 6% previously.
The OECD estimated that a sustained decline in Chinese domestic demand of about two percentage points annually could trigger a significant knock-on effect on the global economy.
If accompanied with deterioration in financial conditions and more uncertainty, such a scenario would mean global growth would be cut by 0.7 percentage point per year in the first two years of the shock.