By Paul Hannon 

The global economy is at risk of settling into a low-growth rut without urgent action to roll back recently erected obstacles to trade and greater investment in tackling climate change, the Organization for Economic Cooperation and Development said Thursday.

In its quarterly report on the outlook for the global economy, the Paris-based research body said it continues to expect that world output of goods and services will increase this year at the slowest pace since the financial crisis. But it doesn't now expect any pickup in global economic growth next year, and only a modest acceleration in 2021.

"Things are not really moving," said Laurence Boone, the OECD's chief economist. "What we are seeing is investment stalling, paving the way for growth to stay at this very low level."

The OECD said investment had weakened in the face of uncertainties created by a trade war between the U.S. and China, the U.K.'s pending departure from the European Union, and other developments that have contributed to the "erosion of the rules-based global trading system."

The U.S. and China are attempting to negotiate a deal that would see exports of American agricultural products rise in return for some easing of tariffs on imports from China. Ms. Boone said that while such a deal would be "welcome," it wouldn't resolve deeper problems.

"This is the tip of the iceberg," she said in an interview with The Wall Street Journal. "The real issues are the transfer of technology, and all the transfers and government supports that exist."

The OECD noted that global agriculture receives $700 billion in subsidies each year, while "a few" aluminum producers receive a total of $16 billion. The organization, which provides policy advice to its member countries, called for more openness from governments on the support they give to business, and why they provide it.

The OECD lowered its forecast for global economic growth in 2020 to 2.9% from the 3% it expected in September. That would mark an unchanged pace of expansion from 2019. This time last year, the OECD had expected growth of 3.5% in each year. The OECD expects U.S. economic growth to slow to 2% next year and in 2021, from 2.3% this year.

That missing growth is largely attributable to trade disputes, Ms. Boone said, noting they would reduce global economic output by between 0.5% and 0.7% in both 2020 and 2021.

The OECD said governments do have the means to boost economic growth in coming years. The research body called for new investment funds that would raise finance on bond markets at low or negative interest rates, and support actions to tackle climate change and advance digitization.

It said too much money is being invested in energy production using fossil fuels, and not enough in energy-saving technologies and renewable sources. The OECD's economists calculate that more than $1 trillion will be invested in new fossil-fuel supply between this year and 2030, compared with less than $300 million in renewable sources of energy.

Ms. Boone said the new funds could be modeled on the U.S. Defense Advanced Research Projects Agency, which she said had helped to spur innovation in privately owned businesses without closing down competition, and provided a template for good governance.

"The idea is not that the public sector substitutes for the private sector, but that it unlocks investment for the private sector," she said.

New ways of paying for investment could be particularly attractive in Europe, where self-imposed rules limit the ability of governments to increase spending. The OECD expects the eurozone economy to grow 1.1% in 2020, almost half the U.S. rate, with a slight pickup to 1.2% in 2021.

The European Central Bank has called on eurozone governments to help it boost flagging growth, but the European Commission on Wednesday said there would be no such stimulus next year if member states stick to their current budget plans.

The OECD said a combination of economic overhauls designed to boost productivity, increased investment and some easing of monetary policy where that is possible would lift global growth by more than a percentage point within two years, and over the long term.

"There is a unique window of opportunity to avoid a stagnation that would harm most people, restore certainty and invest for the benefit of all," said Ms. Boone.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

November 21, 2019 05:14 ET (10:14 GMT)

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