Risks Might Overshadow Sunny Outlook for World Economy

According to the latest economic outlook from the Organisation for Economic Co-operation and Development (OECD), the global economy is seeing stronger growth as the result of a recovery in trade, higher investment and increased job creation. As a result, the OECD is pacing global expansion over the 2018 to 2019 period at around 4%. However, this outlook does have some implicit risks, which could threaten the outlook altogether.

The OECD points out that low, albeit gradually rising, interest rates coupled with fiscal easing in many countries will continue to influence the expansion, which will see moderate rises in both wage growth and inflation. At the same time, unemployment in the OECD area is expected to drop to the lowest levels since 1980.

Angel Gurria, OECD secretary-general, commented:

The economic expansion is set to continue for the coming two years, and the short-term growth outlook is more favourable than it has been for many years. However, the current recovery is still being supported by very accommodative monetary policy, and increasingly by fiscal easing. This suggests that strong, self-sustaining growth has not yet been attained.

On the other hand, the outlook highlights a range of risks to the current expansion. Oil prices have risen significantly in the past year and, if sustained, could add to inflation while softening real household income growth. The threat of trade restrictions has begun to adversely affect confidence, and if such measures were implemented, they would negatively influence investment and jobs.

Risks also remain that the normalization of interest rates in some economies, notably the United States, could expose financial vulnerabilities and tensions created by elevated risk-taking in financial markets and high debt, especially in emerging market economies with high levels of foreign currency debt.