World economy to suffer worst growth since financial crisis

Trade wars weigh heavily as outlook for growth is downgraded to 2.9 per cent for this year

                                

The world economy will experience its slowest rate of growth since the financial crisis a decade ago, the Organisation for Economic Cooperation and Development (OECD) forecast.

World GDP is expected to grow by 2.9 per cent this year, its lowest since 2008-09, and to remain at 2.9 to 3.0 per cent over the coming two years, the OECD said in its twice-yearly economic outlook. This marks a stark deterioration from its last forecast for 2019 in May, when it expected GDP to expand at 3.2 per cent this year and 3.4 per cent next year.

Global GDP expanded at 3.5 percent in 2018.

Two years of escalating conflict over tariffs, principally between the US and China, have hit trade, undermining business investment and putting jobs at risk, the Paris-based think tank said.

Digitalisation is also transforming traditional business models, while climate change and shifting demographics disrupt typical patterns of activity, posing extra challenges to governments around the world.

OECD Secretary-General Angel Gurría said: “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.”

Household spending has held up, despite slowing growth in regions such as the euro zone, or the UK, where economic growth has faced uncertainty over Brexit. The OECD noted, however, that signs of weakness are emerging, with car sales for example having fallen.

However, the OECD expects the UK economy to grow by 1.2 per cent this year, up from 1 per cent previously, as the prospect of a no-deal Brexit recedes.

In its outlook, the OECD said that while some of the weakness in the global economy could be attributed to policy decisions, such as the US-China trade dispute, which could prove to have only temporary repercussions, the root problem was structural.

OECD Chief Economist Laurence Boone said: “It would be a mistake to consider these changes as temporary factors that can be addressed with monetary or fiscal policy: they are structural. Without coordination for trade and global taxation, clear policy directions for the energy transition, uncertainty will continue to loom large and damage growth prospects.”

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