Global economic growth has peaked, OECD says

Paris-based policy forum cut GDP growth projections from 3.8% to 3.7%

Global economic growth has peaked out in the face of rising trade frictions and emerging market turbulence, the OECD said on Thursday, trimming its earlier outlook.

The world economy is on course for growth this year of 3.7 per cent this and next year, up from 3.6 per cent last year, said the Organisation for Economic Co-operation & Development (OECD).

In its last economic outlook in May, the Paris-based policy forum had forecast growth of 3.8 per cent this year and 3.9 per cent in 2019, but it said in an update on Thursday that growth had peaked since those last projections were made.

The OECD said trade growth, the engine behind the global upswing in recent years, had slowed this year to around three per cent from five per cent in 2017 as tensions between the United States and its major trade partners weighed on confidence and investment. Even though the United States is the source of these trade frictions, the economic outlook for the United States was nevertheless the brightest amongst the OECD's major developed economies, thanks to tax cuts and government spending.

The OECD left its forecast for US growth this year unchanged at 2.9 per cent, but trimmed the forecast for next year to 2.7 per cent, from 2.8 per cent previously.

It said that US import tariffs were beginning to have an impact on the world's biggest economy, estimating that those already imposed would lift overall US prices 0.3-0.4 per cent. Particular products were even more effected, with US prices for washing machines jumping 20 per cent between March and July while US exports of cars to China were down nearly 40 per cent over one year.

Meanwhile, the OECD said that a weaker currency had so far helped China - which is not an OECD member - absorb the impact of higher US tariffs, leaving its growth forecasts unchanged at 6.7 per cent for this year and 6.4 per cent for next year.

Rising US interest rates and a stronger US dollar spelled trouble for emerging market economies such as Argentina, Brazil and Turkey, the OECD said, slashing its forecasts for those three countries.

Meanwhile, softer foreign demand meant the euro zone economy was unlikely to fare as well as previously expected. The OECD downgraded the euro zone’s growth forecast for this year to 2.0 per cent from 2.2 per cent, and nudged next year’s outlook down to 1.9 per cent from 2.1 per cent.