Global Trade, Political Tensions Hurt Economic Outlook

The gripping regional and international trade and political tensions are posing serious threats to international economies especially there are chances that weak and smaller economies may be completely crippled by these tensions. Resultantly one after the other international organizations are forced to announce further cut in the global economic outlook growth forecasts. These forecasts and predictions about the international economic growth are prepared on the basis of authentic analyses, surveys and observations which are presenting grim picture of future economic scenario of the world.

In this connection, the Organization for Economic Co-Operation & Development (OECD) has cut forecasts again for the global economy in 2019 and 2020, following on from previous downgrades in November, as it warned that trade disputes and uncertainty over Brexit would hit world commerce and businesses. The Organization for Economic Co-Operation & Development forecast in its interim outlook report that the world economy would grow 3.3 percent in 2019 and 3.4 percent in 2020.

Those forecasts represented cuts of 0.2 percentage points for 2019 and 0.1 percentage points for 2020, compared to the OECD’s last set of forecasts in November. High policy uncertainty, ongoing trade tensions, and a further erosion of business and consumer confidence are all contributing to the slowdown. Substantial policy uncertainty remains in Europe, including over Brexit. A disorderly exit would raise the costs for European economies substantially.

Europe remains impacted by uncertainty over Britain’s plans to exit the European Union, the US – China trade spat and other weak spots, such as signs of a recession in Italy.For Germany, Europe’s largest economy, the OECD more than halved its 2019 GDP growth forecast to 0.7 percent from 1.6 percent previously. It predicted a light recovery to 1.1 percent growth in 2020.

Germany’s export-reliant economy is particularly affected by weaker global demand and rising trade barriers. Meanwhile, data earlier this month showed that U.S. personal income had fallen for the first time in more than three years in January while consumer spending dropped by the most since 2009 in December, putting the world’s biggest economy on a relatively weak growth trajectory early in the first quarter. China, the world’s second-biggest economy, has also faced signs of stuttering growth. China is seeking to shore up its slowing economy through billions of dollars in planned tax cuts and infrastructure spending, with growth at its weakest in almost 30 years due to softer domestic demand and a trade war with the United States.

Previously in March this, OECD warned that the global economy suffered more than expected from trade tensions and political uncertainty which are clouding prospects particularly in Europe, according to a gloomy report from the OECD. As these are the organization’s first forecasts in almost four months, it’s partly playing catch-up with developments since then. In that period, little has gone right for the world’s biggest economies: Weakness in the euro areaand China are proving more persistent, trade growth has slowed sharply and uncertainty over Brexit has continued.

The global expansion continues to lose momentum, the Paris-based Organization for Economic Cooperation and Development said as it downgraded almost every Group of 20 nation’s economy. Growth outcomes could be weaker still if downside risks materialize or interact. The OECD’s numbers are more downbeat than the IMF’s for many economies, particularly the euro region and the UK, as the organization warns that things could get worse.

However, there have been some small signs recently that the global economy is stabilizing, while the US and China are making progress on ending their lengthy trade dispute. JPMorgan’s global composite Purchasing Managers Index rose in February for the first time in three months, while some euro-area gauges were also better than anticipated.

Getting a clear steer on global growth is very difficult right now, but at least, the latest PMIs have some positives, HSBC economist James Pomeroy said in a note. Central banks including the Federal Reserve have already responded to the changed circumstances, and the European Central Bank may soon follow. China, forced to lower its goal for economic growth this week, has rolled out tax cuts to stimulate its economy.

The OECD outlook goes against hopes that sources of weakness at the end of 2018, including lower confidence, would prove temporary. That creates a headache for policy makers who may now need to find more combative solutions with limited room for maneuver on the fiscal and monetary side.

While central banks should stay in expansionary mode, the group called for structural reforms and fiscal stimulus in the European countries that could afford it, saying that monetary policy alone cannot resolve the downturn in Europe or improve the modest medium-term growth prospects.

The OECD cut its growth outlook for this year to 1 percent from 1.8 percent. ECB policy makers are meeting in Frankfurt this week, and the OECD said they should signal a delay to any rate hikes and possibly implement new measures to improve funding for banks. Both measures are expected to be discussed in Frankfurt. Europe took the brunt of the downgrades. While the US outlook was lowered slightly, the UK’s 2019 forecast was cut to 0.8 percent from 1.4 percent, and Germany’s to 0.7 percent from 1.6 percent. The OECD also singled out Brexit as one of the persistent threats. If the UKdoesn’t secure a deal, it sees a risk of a near-term recession, with “sizeable negative spillovers” on other countries.

Now the United Nations says it is lowering its forecasts for global economic growth in 2019 and 2020 as a result of high trade tensions, uncertainty over economic policies and softening business confidence. In its mid-year report on economic prospects, the UN said that following an expansion of 3% in 2018, the world economy is now projected to grow 2.7% in 2019 and 2.9% in 2020. UN officials had projected 3% growth for both years in its January forecast. The new report says the growth outlook in all major developed countries and most developing regions has weakened due to both domestic and external factors. UN chief economist Elliot Harris says that more comprehensive and well-targeted policy responses are needed to tackle the current growth slowdown.

It finds that all major developed economies, and most developing regions, have weakened prospects for growth. A further escalation of the trade dispute between the U.S. and China threatens both short- and medium-term global growth prospects, according to the United Nations World Economic Situation and Prospects (WESP) mid-2019 report released at UN headquarters in New York. The report said that global merchandise trade-volume growth has slowed more sharply than expected, particularly in late 2018 and early 2019.

Data from the US Census Bureau showed that bilateral merchandise trade between the two countries has declined by more than 15 percent since September 2018, when the second round of tariffs went into effect. This has also impacted global value chains in East Asia and other trading partners, the report said. We’ve seen the trade tariffs that have been introduced on both sides have already been damaging trade, said Dawn Holland, chief of the Global Economic Monitoring Branch in the UN Department of Economic and Social Affairs.

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