In its first international report since Donald Trump’s unexpected presidential victory, the Organisation for Economic Cooperation and Development (OECD) has said that although the exact benefits of Trump’s proposed spending and tax cuts are unclear, it does expect his proposals to boost economic growth in the US. The OECD said the likely boost would improve US growth in 2017 from 1.9% to 2.3% and in 2018 from 2.2% to 3%. As for global economic growth, they have raised the outlook from 3.2% in 2017 to 3.3% and from 3.3% to 3.6% in 2018. The forecasts are based on the US government increasing spending in 2017 and 2018 by 0.25% of GDP, together with a cut in the corporate tax rate along with a cut in income tax. Together the 2 cuts in tax will represent approximately 1.25% of US GDP by 2018.
Angel Gurria, the OECD’s secretary-general said in a statement after the release ‘There’s now some prospect of the world exiting from this low-growth trap’ adding ‘Even though we still show the signs of those very heavy legacies of the crisis, we may be at a moment where we could see a turn for the better’ He also believed that other governments should follow the US’s lead and provide more fiscal stimulus, insisting that it would provide further global growth.
However, Mr Gurria also gave a word of warning about the perils of protectionism, believing a slide towards trade and tariff barriers plus the tearing up of trade agreements could offset the boost from higher spending and lower taxes. As Catherine Mann, the OECD’s chief economist put it ‘Protectionism and inevitable trade retaliation would offset much of the effects of the fiscal initiatives on domestic and global growth, raise prices, harm living standards, and leave countries in a worsened fiscal position’ According to the OECD, foreign demand makes up more than 25% of jobs to some of the 35 members it gives advice to.
As well as raising the US’s growth forecasts, the OECD also had some mixed news for the UK government. As recent as September they revised UK growth up from 1% to 1.2% in 2017, however they now expect the drag of Brexit negotiations to hurt the UK economy beyond that, predicting growth to slow to just 1% in 2018. This Figure is well below the UK’s government Office for Budget Responsibility own forecasts of 1.4% growth in 2017 and 1.7% growth in 2018 that the Chancellor of the Exchequer delivered in his autumn statement last week.