The Organisation for Economic Co-operation and Development (OECD) issued its forecast for the global economy. The widely regarded agency reported worldwide GDP growth has peaked and will start to fall, particularly in the U.S. and other developed countries.
The OECD Economic Outlook 2018 covers the economies of 46 nations and reviews the effects of tariffs, regulations, debt, wages, and central bank policies among other things. The report’s authors take into account the average GDP growth rate from 2011 to 2018 both worldwide and by nation. In addition, its analysis covers real GDP growth in 2017, and forecasts for 2018, 2019, and 2020. It also includes forecasts for the final quarter of 2018, 2019, and 2020. The primary conclusion of the authors is that “The global economy has peaked. Global GDP is expected to ease gradually from 3.7% in 2018 to 3.5% in 2019 and 2020 broadly in line with underlying global potential output growth.”
The deceleration will vary widely. U.S. GDP growth is expected to drop to from a 3.1% rate in the fourth quarter of this year to 2% in the same quarter of 2020. This is broadly in line with other estimates from The World Bank and IMF. Private economists have also issued pessimistic forecasts for the U.S.
GDP in the two other major developed nations are also expected to slow considerably. In particular, Euro area GDP expansion is forecast to be 1.5% in the fourth quarter of this year dropping to 1.4% in the fourth quarter of 2020.
Particularly notable is the prediction for China, the world’s second largest economy by GDP. The OECD expects China’s GDP rise will by 6.4% in Q4 of this year and will drop to 6% in the same period in 2020. China’s average GDP expansion by year from 2011 to 2018 was 7.1%.
Trade tensions were listed as one of three primary reasons for the global slowdown. This was followed by oil prices and tightening financial conditions. Although crude prices have dropped recently, the OECD does not expect that trend to continue, but rather will reverse itself in years ahead. Inflation was also listed as a concern, and in some economies, it has already started to pick up for the first time since The Great Recession.
The effects of trade tensions would be particularly burdensome for the U.S. and Chinese economies. The authors of the report write “Further moves by the United States and China to raise barriers on bilateral trade would hit output in these economies with adverse effects on global growth and trade” Current and pending tariffs between the U.S. and China have already reached above $200 billion.
The OECD believes there is still a chance for what is known as a “soft landing” if national leaders can improve wage growth and drop trade tensions. However, the numbers the organization released show that the chances for that are not encouraging.