The Daily Update - OECD Downgrades Growth

On Thursday last week the Organization for Economic Co-operation and Development (OECD) downgraded its 2018 and 2019 forecast for economic global growth, warning the lower growth prediction was in a large part due to increased global uncertainties. In its latest interim economic outlook report, the OECD stated that ‘Global growth is projected to settle at 3.7 percent in 2018 and 2019, marginally below pre-crisis norms, with downside risks intensifying’ adding ‘Policy support and strong job growth continue to underpin domestic demand, but some emerging market economies are facing significant headwinds from rising financial market pressures’.

The latest forecast for growth was down 0.1 percentage point for this year, to 3.7% and down 0.2 percentage point for next year compared to the last estimates in May, again at 3.7%. One region that was significantly downgraded was the Eurozone. The OECD now predicts a growth of 2% this year, down from 2.2%, and for 2019 now down to 1.9% for 2019, again 0.2%.

In noting the slowdown in global trade for the first 6 months of 2018, the OECD believed that the current trade tensions were having adverse effects on investment plans and confidence. The additional trade disputes will harm living standards and jobs, especially those in low-income households it believes.

Another area that the OECD raised concerns was the current valuation of asset prices and the levels of debt, principally in emerging market economies. ‘A decade after the financial crisis, vulnerabilities remain in financial markets from elevated asset prices and high debt levels’ it stated, adding ‘Reforms have strengthened the banking system, but risks have shifted towards less tightly regulated non-bank institutions’.

The report was not all doom and gloom though,  with the OECD making some suggestions about economic policies going forward. The recurring theme to the suggestions was that foundations should be laid for policies that restore stability and confidence as well as making sure policies were more inclusive and improved opportunities for all.

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