Economic Outlook: Weak trade and investment threaten long-term growth

OECD chief economist Laurence Boone said that for the past two years global growth outcomes and prospects have steadily deteriorated

OECD chief economist Laurence Boone said that for the past two years global growth outcomes and prospects have steadily deteriorated

"Two years of escalating conflict over tariffs, principally between the U.S. and China, has hit trade, is undermining business investment and is putting jobs at risk", the Paris based organization said.

That missing growth is largely attributable to trade disputes, Ms. Boone said, noting they would reduce global economic output by between 0.5% and 0.7% in both 2020 and 2021. This means that the fourth biggest economy in the eurozone will continue to see sluggish growth and will continue to rely on ultra-low interest rates.

She said that while central banks had taken decisive and timely monetary decisions that partly offset negative effects of trade tensions, most governments had not done so on a fiscal level, for example by investing in long-term projects to improve infrastructure, advance digitalisation of their economies and limit climate change.

"The biggest concern... is that the deterioration of the outlook continues unabated, reflecting unaddressed structural changes more than any cyclical shock", Boone said. It said Italy's unemployment rate dropped from 10.6% in 2018 to 10% this year and would stay at the same level in 2020 before rising to 10.2% in 2021.

However, the OECD warned that the risk of even weaker growth remained high, with particular threats including an escalation of trade conflicts, geopolitical tensions, the possibility of a sharper-than-expected slowdown in China and climate change. In the euro area and Japan, growth is expected at around 1% while the deceleration in China's expansion is set to reach 5.5% in 2021, compared with 6.6% previous year.

Other emerging-market economies are expected to recover "only modestly", Boone said.

Separately, global organisations including the worldwide Monetary Fund and the World Bank warned on Thursday that the world is facing a synchronised economic slowdown stemming from factors such as trade tensions between China and the United States and resulting uncertainties.

British growth was upgraded to 1.2 percent this year from 1.0 percent previously and was seen at 1.0 percent in 2020 (0.9 percent) and 1.2 percent in 2021.

Speaking in Beijing where he was meeting Chinese Premier Li Keqiang and other heads of worldwide organisations, OECD Secretary-General Angel Gurría said: "The alarm bells are ringing loud and clear".

The U.S. and China are trying to negotiate an end to a protracted trade war.

Investors remained cautious on the US-China negotiations after US President Donald Trump said late Wednesday that China was not "stepping up" sufficiently to finalize a preliminary accord struck last month. That's down 0.1 percentage point from their earlier forecast in September.

The broad-based S&P 500 also shed 0.2 percent to 3,101.88, along with the tech-rich Nasdaq Composite Index, which was at 8,514.12. But the outlook was still lower than the BOK estimate of 2.5-2.6 percent. Schwab rose eight per cent.

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