Global Growth to Hit Decade Low Amid U.S.-China Trade War
September 19 2019 - 5:29AM
Dow Jones News
By Paul Hannon
The global economy is set to grow at the slowest pace since the
financial crisis, with business investment and trade hampered by an
escalating dispute between the U.S. and China that could inflict
even more damage over coming years, the Organization for Economic
Cooperation and Development said Thursday.
The Paris-based research body said it now expects world output
of goods and services to increase by 2.9% this year, the smallest
annual rise since 2009 when the global economy was pushed into a
recession by the near-collapse of the financial system.
It expects growth to remain low in 2020 and possibly beyond if
the trade conflict between the U.S. and China spills over into
other aspects of their economic relationship. The OECD noted that
the affiliates of U.S. companies operating in China have sales that
exceed total U.S. exports to China.
Like other international financial institutions, the OECD has
long backed free trade and a more open global economy as a path to
prosperity.
"Our main worry is that this sliding of growth is becoming
entrenched," said Laurence Boone, the OECD's chief economist.
Another worry for Ms. Boone is that trade disputes could
proliferate, with Japan and South Korea already in conflict and
U.S. President Donald Trump due to decide in November whether to
press ahead with tariffs on automobile imports that would hit the
European Union.
The OECD cut its growth forecasts for the U.S. and a number of
developing economies. It now expects U.S. gross domestic product to
increase by 2.4% this year and 2% the next year, having forecast
growth of 2.8% and 2.3% in May. It made an even larger cut to its
2019 growth projections for Mexico, Argentina, Brazil, India,
Russia, Saudi Arabia and South Africa.
The U.S.-China dispute isn't the only cloud on the OECD's
horizon, even if it is the largest and darkest. The research body
also warned that should the U.K. leave the European Union without a
new trade deal, economic output could be 2% lower than would
otherwise be the case in the U.K., and 0.5% lower in the EU. That
would leave the U.K. in recession, and the EU on the brink.
The U.K. has already delayed its departure from the EU once and
may do so again as an Oct. 31 deadline nears.
"It's adding to this uncertainty that's prevailing everywhere,"
said Ms. Boone in an interview with The Wall Street Journal.
Slowing trade flows and business investment are the most obvious
signs that trade disputes are taking a toll on global growth. The
OECD said that across the Group of 20 leading economies, investment
spending rose at an annual rate of just 1% in the first half of
this year, compared with 5% at the start of 2018, when the U.S.
first raised tariffs.
Thus far, the jobs market has held up well in most developed
economies, but the OECD said that support to growth may also be
under threat.
"You can't have this kind of slowdown without some impact on
jobs at some stage," said Ms. Boone.
Over recent years, more voters in many countries have rejected
the free-trade path advocated by the OECD, sending globalization
into retreat.
Ms. Boone thinks they may have second thoughts as the costs of
that reversal become more apparent.
"The appetite for destruction looks like it's growing," she
said. "But the impact hasn't been palpable for people. When they
see firms going bankrupt, jobs being lost, people may question this
move."
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
September 19, 2019 05:14 ET (09:14 GMT)
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