The global growth expansion may have peaked as trade uncertainty and stalled wages tighten their grip on confidence, the Organization for Economic Cooperation and Development said Thursday.
The OECD projected global growth to plateau at 3.7% in both 2018 and 2019, the group said in its latest interim outlook released Thursday. That’s slower than the outlook issued in May and marks a return to a rate of growth just below that seen prior to the financial crisis 10 years ago.
“Confidence has weakened, trade and investment growth have proven slower than anticipated and wage growth has remained modest across most countries despite OECD-wide unemployment having fallen below pre-crisis rates,” the OECD said in its release.
And the largest factor? Trade.
“Trade tensions are starting to bite, and are already having adverse effects on confidence and investment plans,” said OECD Chief Economist Laurence Boone. “Trade growth has stalled, restrictions are having marked sectoral effects and the level of uncertainty on trade stances remains high. It is urgent for countries to end the slide towards further protectionism, reinforce the global rules‑based international trade system and boost international dialogue, which will provide business with the confidence to invest.”
She added: “With tighter financial conditions creating stress on a number of emerging economies, especially Turkey and Argentina, a strong and stable policy framework will be key to avoid further turbulence.”
Emerging market stocks, broadly, have flipped into bear-market territory.
Related: Why history suggests emerging-market investors should power through the bear market
The OECD called for a gradual normalization of monetary policy but said it should be at a varying degree across different economies. The Federal Reserve, who is tightening interest-rate policy at a faster clip than its large-economy brethren, is expected to nudge a key rate higher again when it meets next week. That has boosted the dollar DXY, -0.57% this year, a factor that is creating a drag on emerging market economies.
The OECD expects U.S. GDP growth at 2.9% this year, slowing to 2.7% in 2019, a downgrade from its previous outlook. It expects the euro area to grow 2% this year and 1.9% next year. China, meanwhile, is pegged for a 6.7% GDP growth rate in 2018, slowing to 6.4% next year.
Boone said in a CNBC interview that trade tariffs were impacting China, yet Beijing had managed to steer a portion of its economy away from its previous reliance on exports.
Just this week, in only the latest lobs between the two powers, Beijing announced it would retaliate against new U.S. tariffs with import tariffs of its own on $60 billion worth of U.S.-made goods. President Trump said Monday that the U.S. would impose a 10% levy on about $200 billion of Chinese goods.
The OECD’s chief economist also highlighted in the interview Brexit as a major source of uncertainty and said it was “vital” that a deal is struck on trade and financial services in order to maintain a close relationship between European Union and Britain. Britain is due to leave the EU in March 2019.
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