As the global economy slows and major risks portend further woes, economic prospects are now weaker in nearly all G20 countries, according to a new report from the Organization for Economic Cooperation (OECD).
At the same time, Macroeconomic Advisers by IHS Markit’s “US Economic Forecast Flash” forecasts U.S. gross domestic product (GDP) to slow to around 2 percent in 2019 and 2020, as the boost from fiscal stimulus first peaks and then fades.
“Vulnerabilities stemming from China and the weakening European economy, combined with a slowdown in trade and global manufacturing, high policy uncertainty and risks in financial markets could undermine strong and sustainable medium-term growth worldwide,” the OECD report said.
OECD projects the global economy to grow 3.3 percent in 2019 and 3.4 percent in 2020. The report noted that downward revisions from its November “Economic Outlook” are notable in Europe, particularly Germany, Italy and the U.K., as well as Canada and Turkey.
The outlook stressed that further trade restrictions, such as tariffs imposed last year by the U.S. and China, and policy uncertainty could have more adverse effects on global growth. In China, OECD said policy stimulus is expected to help offset weak trade developments, but risks of a sharper slowdown persist that could hit global growth and trade prospects.
“The global economy is facing increasingly serious headwinds,” OECD chief economist Laurence Boone said. “A sharper slowdown in any of the major regions could derail activity worldwide, especially if it spills over to financial markets. Governments should intensify multilateral dialogue to limit risks and coordinate policy actions to avoid a further downturn.”
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OECD called on central banks to remain supportive, but emphasized that monetary policy alone cannot resolve the downturn in Europe or improve the modest medium-term prospects. A new coordinated fiscal stimulus policy in low-debt European countries combined with structural reforms in Euro Zone countries would add momentum toward a rebound, boost productivity and spur wage growth, OECD added.
In the U.S., Macroeconomic Advisers by IHS Markit chief U.S. economist Joel Prakken and executive directors Patrick Newport and Ben Herzon forecast GDP growth will slow sharply in the first quarter to 1.3 percent. This is based on weak consumer spending in December leading to poor momentum in the first quarter and a reversal of a weather-induced surge in spending on utilities late last year.
“After 2020, GDP growth is projected to ease further to a 1.7 percent annual average through 2023 while the unemployment rate, after bottoming out at 3.5 percent, is forecast to drift higher–a profile that we think balances the risks between an outlook of continuing trend growth and an outright recession,” the economists said. “Financial conditions have improved of late, with equity values starting off this month’s forecast about 5 percent higher than last month, and with both term and risk spreads starting somewhat lower.”