OECD Warns of Global Slowdown

Douglas A. McIntyre

The Organization for Economic Cooperation and Development (OECD) kept its less than mediocre forecast of global growth, and warned about the balance of this year.

The global economy is projected to grow at a slower pace this year than in 2015, with only a modest uptick expected in 2017. The outlook warns that a low-growth trap has taken root, as poor growth expectations further depress trade, investment, productivity and wages.

Global trade growth has slowed to half its pre-crisis rate, contracting at the start of 2016 with the current weakness concentrated in Asia. While low investment has played a role, rebalancing in China and a reversal in the development of global value chains could signal permanently lower trade growth, leading to weaker productivity growth. Lack of progress – together with some backtracking – on the opening of global markets to trade has added to the slowdown.

Exceptionally low – and in some cases negative – interest rates are distorting financial markets and raising risks across the financial system.  A disconnect between rising bond and equity prices and falling profit and growth expectations, combined with over-heating real estate markets in many countries, increases the vulnerability of investors to a sharp correction in asset prices.

As in the recent past, these forecasts have a habit of getting worse.