$470 billion trade war looms over OECD's optimistic global outlook

Jeannie Matthews
March 13, 2018

On its latest forecasts, the OECD said "stronger investment, the rebound in global trade and higher employment are helping to make the recovery increasingly broad-based".

The Paris-based organisation said the world economy was on course to expand at an annual pace of 3.9% over the next two years.

"The Outlook underlines the boost to short-term growth expected from new tax reductions and expected spending increases in the United States and expected fiscal stimulus in Germany, but also points out a number of financial sector risks and vulnerabilities, as well as those posed by a rise in protectionism".

The global economy will grow close to 4 per cent this year and next, better than previously anticipated, according to the OECD, which added a warning that a trade war could roll back the gains seen in recent years.

The OECD's acting chief economist said any trade war resulting from US President Donald Trump's planned import duties on steel and aluminium products, would prove "fairly damaging".

The latest report lifted growth forecasts for the US and eurozone economies.

The OECD blamed the UK's position on high inflation dampening consumer demand and continued uncertainty about Brexit.

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National Treasury now anticipates growth of 1.5% in 2018, rising to 2.1% in 2020.

For South Africa, the OECD has revised the expected GDP growth rate upward to 1.9% in 2018, and 2.1% in 2019 - higher than the growth rate now targeted by National Treasury.

With the euro area economy resilient, rising inflation would allow the European Central Bank to reduce its bond purchases gradually this year and subsequently phase out its negative interest rate policy, the OECD said.

Last week, Stats SA reported higher than expected GDP growth for South Africa in 2017, showing that the economy grew by 1.3%, exceeding National Treasury's expectation of 1.0%.

"I think it is very important to avoid escalation and to initiate a strengthening in the global dialogue to solve not only the problem for steel but to avoid bigger repercussions in terms of trade".

"Safeguarding the rules-based worldwide trading system is essential to prevent the longer-term harm to growth prospects that could arise from a retreat from open markets", it said.

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