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Tariffs Aren’t the Only Culprit Behind Handicapped Global Growth, OECD Says

Factors such as the U.S.-China 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 latest “Economic Outlook” report from the Organisation for Economic Co-operation and Development (OECD).

World gross domestic product (GDP) growth is expected to be 2.9 percent this year, which would be its lowest annual rate since the Great Recession, and remain at 2.9 percent to 3 percent in 2020 and 2021, after expanding to 3.5 percent in 2018, OECD said.

The organization, a global policy forum that promotes policies to improve the economic and social well-being of people around the world, said bold action is needed to address the high levels of uncertainty facing businesses and the fundamental changes taking place in the global economy. It called for policy makers to lead in a transition to cleaner energy and to an increasingly digital world.

OECD also said that governments should work together to boost investment and establish fair international rules on taxation and trade.

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

The global economic slowdown involves advanced and emerging-market economies, although its severity varies based on their reliance on trade. Growth in the U.S. is forecast to slow to 2 percent in 2020 and 2021, OECD said, while in the Euro area and Japan, growth is expected at around 1 percent. The deceleration in China’s expansion is set to reach 5.5 percent in 2021, compared with 6.6 percent last year.

“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 report said. “Although household spending has been holding up, signs of it weakening are emerging. Car sales have declined sharply over the past year.”

The report said while the fragility of the world economy can be blamed in large part on deliberate policy decisions, it also reflects deeper, structural changes. Digitization is transforming business models while climate and demographic changes are already disrupting existing patterns of activity. At the same time, China is rebalancing away from a reliance on exports and manufacturing toward consumption and services.

Speaking in Beijing, where he was meeting Chinese Premier Li Keqiang and other heads of international organizations, 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.”

Aggregate investment growth in the G20 countries, excluding China, slowed from an annual rate of 5 percent at the start of 2018 to only 1 percent in the first half of 2019, the report shows.

The OECD warned that further escalation of the U.S.-China trade conflict would disrupt supply networks and weigh on confidence, jobs and incomes. Uncertainty about a future European Union-U.K. trade relationship poses a further risk to growth.

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