OECD Says US Economic Outlook Strong With Serious Risks on the Horizon

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The Organization for Economic Cooperation and Development (OECD) on Wednesday released its 2018 Economic Survey of the United States. The survey offers a robust near-term outlook, but it notes as well that risks to the outlook “remain sizable.”

The OECD expects U.S. GDP growth of 2.9% in 2018, up from 2.3% last year. The outlook for 2019 calls for GDP growth of 2.8%. The tax cuts enacted last December are tagged to provide a fiscal stimulus to the economy of around 1% in both 2018 and 2019 and “plans to reduce regulatory burdens should also help foster business dynamism.”

Alongside that rosy picture, the OECD also warns that high debt levels need to be monitored, as does a possible strengthening of the U.S. dollar. Over the longer-term, “fiscal sustainability remains a concern.”

The elephant in the room, of course, is a new tariff regime on goods exported to the United States. The OECD warns of perhaps unintended consequences: “Rising trade tensions with key partners also threaten to disrupt global supply chains and dent growth. And long-term fiscal sustainability remains a concern.”

OECD Secretary-General Angel Gurria said:

The U.S. economic recovery and expansion has been remarkable and appears set to continue for the coming two years. But there are also some serious risks on the horizon, including trade policy, that could threaten much-needed growth, both here in the U.S. and in many other OECD countries. Further policy reforms are needed to sustain the expansion and ensure that all Americans benefit from stronger and more sustainable growth.

Other risks are declining labor participation rates among prime-age U.S. workers. A tightening labor market may soften the impact somewhat, but the OECD recommends “experimentation” with more active policies including job placement services and more support for geographic mobility.

Technological advancements in robotics and artificial intelligence are poised to yield many benefits, but the downsides are potential job losses and pressure on wages.

Visit the OECD website for more information and a slide presentation offering more details on the U.S. economy and the OECD’s recommendations.