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World economy mired in weakest growth in decade
INTENSIFYING trade conflicts have sent global growth momentum tumbling towards lows last seen during the financial crisis, and governments are not doing enough to prevent long-term damage, the Organisation for Economic Co-operation and Development (OECD) said in its latest outlook.
The Paris-based organisation cut almost all economic forecasts it made just four months ago, as protectionist policies take an increasing toll on confidence and investment, and risks continue to mount on financial markets. It sees world growth at a mere 2.9 per cent this year.
"Our fear is that we are entering an era where growth is stuck at a very low level," OECD Chief Economist Laurence Boone said. "Governments should absolutely take advantage of low rates to invest in the future now so that this sluggish growth doesn't become the new normal."
The OECD is the latest institution sounding the alarm over the state of the global economy. In the past two weeks, the Federal Reserve, the European Central Bank, the People's Bank of China and many of their peers have eased policy to shore up demand, urging governments at the same time that fiscal stimulus will be needed to ensure their efforts won't be futile.
Manufacturing has borne the brunt of the economic crisis brought about by a tit-for-tat trade war between the US and China. The services sector has proved unusually resilient to the malaise so far, but the OECD warned that "persistent weakness" in industry will weigh on the labour market, household incomes and spending. The US economy was now expected to expand by 2.4 per cent this year, a downward revision of 0.4 percentage points from the May forecast, and significantly slower than the 2.9 per cent recorded last year. The 2020 forecast was cut by 0.3 percentage points to 2.0 per cent. Chinese growth was expected to slow to 6.1 per cent in 2019, a downward revision of 0.1 point, while next year's forecast was cut by 0.3 points to 5.7 per cent. Analysts say Mr Trump's brinkmanship on trade with China has left consumers, businesses and financial markets on edge.
They said not knowing whether the next Presidential tweet will ease or exacerbate tensions makes for an environment of extreme uncertainty, pushing businesses to turn cautious on investment and hiring, and households to swing from spending to saving.
The OECD said "collective effort is urgent to halt the build-up of trade-distorting tariffs and subsidies and to restore a transparent and predictable rules-based system that encourages businesses to invest".
It revised downwards its 2019 forecast for the 19-country eurozone to 1.1 per cent growth this year and 1.0 per cent in 2020, whereas previously it had been expecting activity in the single currency area to pick up speed.
Britain's growth outlook was also lowered as uncertainty over Brexit persists, with the OECD now pencilling in expansion of 1.0 per cent this year and 0.9 per cent in 2020, compared with 1.4 per cent last year. "A no-deal exit would be costly in the near-term, potentially pushing the United Kingdom into recession in 2020 and reducing growth in Europe considerably," the OECD warned.
The OECD said "collective effort is urgent," and the effectiveness of monetary policy could be enhanced by "stronger fiscal and structural policy support".
It's a point central bankers have made for months, and their requests are getting more intense. Following the ECB's latest monetary stimulus push, President Mario Draghi said it's "high time" for fiscal policy to take charge, signalling there's not much more his institution can do.
"The takeaway for the eurozone today is: Do not rely on monetary policy to do the job alone," Mr Boone said. "Start investing to do the structural reforms that need to be done for more sustainable growth, and do it now." BLOOMBERG, AFP