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Weak trade and investment threaten long-term growth

Nov 22, 2019
Trade conflict, weak business investment and persistent political uncertainty are weighing on the world economy and raising the risk of long-term stagnation, according to the OECD’s latest Economic Outlook.
 
World GDP growth is expected to be 2.9% this year – its lowest annual rate since the financial crisis – and remain at  2.9–3.0% in 2020 and 2021. Global GDP expanded 3.5% in 2018.
 
Presenting the Outlook in Paris, OECD Chief Economist, Laurence Boone said, “It would be a mistake to consider that low growth is due to temporary factors that can be addressed with monetary or fiscal policy; the issues 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.”
 
The slowdown involves advanced and emerging-market economies alike, although its severity varies according to the importance of trade in individual countries. Growth in the US is forecast to slow to 2% in 2020 and 2021. In the euro area and Japan, growth is expected at around 1% and .75%, respectively, while the deceleration in China’s expansion is set to reach 5.5% in 2021, compared with 6.6% last year.

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. Although household spending has been holding up, signs of it weakening are emerging. Car sales have declined sharply over the past year.
 
While the fragility of the world economy can be blamed in large part on deliberate policy decisions, it also reflects deeper, structural changes, says the Outlook. Digitalisation is transforming business models while climate and demographic changes are already disrupting existing patterns of activity. China, meanwhile, is rebalancing away from a reliance on exports and manufacturing towards consumption and services.

(Source: OECD)