OECD Says Trade War Risk Stalks Global Growth Upturn

The prospect of a trade war is threatening the global growth outlook, which otherwise is on course for a 40-year low in unemployment, the OECD said on Wednesday.
Global growth is set to nudge up from 3.8% this year to 3.9% in 2019, the Organization for Economic Cooperation and Development forecast in its biannual Economic Outlook, Reuters reported.
The OECD said budgetary easing had taken over from central bank stimulus as the main motor of global growth with three fourths of its member countries now estimated to be loosening purse-strings, led by massive US tax cuts.
Against that backdrop, the overall OECD unemployment rate was seen falling to 5% by the end of 2019, hitting the lowest level since 1980 and setting the stage for so-far elusive growth in workers’ wages.
“In spite of all this good news, risks loom large for the global outlook. What are these risks? First and foremost, an escalation of trade tensions should be avoided,” acting OECD chief economist Alvaro Pereira wrote in an introduction to the organization’s biannual Economic Outlook.
The warning comes as European governments brace for the expiration of temporary exemptions on new US steel and aluminum tariffs on June 1, which has outraged Washington’s closest allies.
Though the number of trade restrictions has crept higher over the last decade, further measures could create a significant drag on growth because the global economy is now more interconnected than ever before, the OECD said.

  Outlook
With tax cuts boosting US investment, the world’s biggest economy was forecast to grow 2.9% this year and 2.8% next year. As a result the US Federal Reserve was expected to keep gradually increasing its interest rates, bringing the fed funds rate to 3.25% by the end of 2019.
The eurozone economy was seen growing 2.2% this year and 2.1% in 2019 as the labor market and wages recover. The European Central Bank was seen halting bond purchases this year and increasing its negative deposit rate in the second half of 2019.
Outside the eurozone, the OECD marginally raised its outlook for Britain to 1.4% growth this year and 1.3% in 2019. The Bank of England was expected to only gradually raise interest rates given the uncertainty over Brexit.
Japanese growth was seen at 1.2% both this and next year as growing labor shortages force companies to increase business investment and hire more workers.
Outside of the OECD, Chinese growth was expected to ease gradually from 6.7% this year to 6.4% in 2019 as infrastructure investment slows in the face of tighter lending conditions and tougher government project approvals.