Fastest global growth in six years predicted
The protectionist rhetoric undermines investment rebound
10 June, 2017
While concerns about the global economy continue to plague investors, the Organisation for Economic Cooperation and Development (OECD) has forecast that the global economy is on course for its fastest growth in close to six years but has warned that countries need to strive to do better. The Paris-based OECD has predicted that the global economy is set to grow 3.5% in 2017, followed by an increase to 3.6% in 2018 as confidence is increasing and investment and trade are picking up from low levels.
"International trade growth revived in the last year, although it still remains less robust than in pre-crisis decades. Technology-driven and deeper trade integration through global value chains creates new markets and raises productivity," the OECD said in the official forecasts.
Doubt about the benefits of world trade has moved from the margins to the centre of global political conversation since voters put Donald Trump in the White House and opted last year to pull Britain out of the European Union. At a meeting in Sicily three weeks ago, the Group of Seven leaders watered down their traditional defence of open markets at the behest of President Trump, saying only that trade needs to be “free, fair and mutually beneficial”. They will resume the discussion at a meeting of the larger Group of 20 in Hamburg in July.
The OECD warned world leaders that protectionist politics risk undermining an investment recovery that has the global economy improving without showing real acceleration.
“Investment has been a missing support for global growth, trade, productivity and real wages,” OECD Chief Economist Catherine Mann wrote in the report. While improving demand and strong competition policies are helping change that, “protectionist policies in G-20 countries and anti-globalisation rhetoric” are creating “reservations” among investors.
The financial and economic consequences of the debate are potentially high.
“Geopolitical shocks and trade protectionism could catalyse snap-backs in asset prices and realise downside risks through a variety of channels,” Mann wrote. “Global equity prices have increased, reaching historic highs in the United States and Germany, despite little upward revision to GDP growth and inflation.”