OECD says global growth to flounder

Growth is about to grind to new post-GFC lows, making it hard for nations to keep pension promises, says the OECD.

Organisation for Economic Co-operation and Development chief economist Catherine Mann. Picture: AFP.

Global economic growth will flounder this year and next at rates not seen since the financial crisis as the march of globalisation grinds to a halt, the OECD warns.

Long a motor for the global economy, trade growth is set to lag growth in the broader world economy this year, the Organisation for Economic Cooperation and Development said in an update of its main economic forecasts. “This is well below past norms and implies that globalisation as measured by trade intensity may have stalled,” the Paris-based organisation said. As a result, the OECD estimated the global economy would muster growth of only 2.9 per cent this year, the lowest rate since the global financial crisis of 2008-2009.

The OECD said many global supply chains that add economic value at each stage and are often rooted in China and other east Asian countries were unravelling as China sought to wean its economy off of exports for growth and some firms brought back production to their home countries.

A growing backlash against trade liberalisation as well as recessions in some big commodity-producing countries were adding to the trade slowdown, which the OECD warned could erode already flagging productivity and thus ultimately living standards.

“If we could get back on track with the kind of trade growth that we had in the 1990s and 2000s, we would be able to return to productivity growth rates prior to the financial crisis,” OECD chief economist Catherine Mann told Reuters in an interview.

“Productivity has basically fallen by half since the financial crisis and that is a recipe for breaking promises to all of our citizens,” she said. With global growth seen picking up to only 3.2 per cent next year — trimmed from 3.3 per cent in June, Mann warned that would be too little to generate the jobs that youths expected and to respect pension promises to the elderly. “This is not a pretty picture for global growth,” Mann said. “Across the board a 3 per cent growth rate is insufficient to keep promises to citizens.”

The OECD said that growth in the United States was in particular looking weaker than only a few months ago, forecasting growth in the world’s biggest economy at 1.4 per cent this year, down from a forecast of 1.8 per cent in June. Although that would be the weakest growth since the financial crisis in 2009 and weaker than the eurozone’s 1.5 per cent, the OECD said that the Federal Reserve should go ahead with an interest rate hike of a quarter percentage point. That would help keep asset prices from galloping ahead of growth in the real economy, potentially creating bubbles, Mann said as Fed policymakers prepared for a rate decision on Wednesday.

The OECD estimated the British economy would suffer less than initially feared as a result of a the vote in June to leave the European Union. It forecast British growth of 1.8 per cent, up from 1.7 per cent in June.

Reuters