$470 billion trade war looms over OECD's optimistic global outlook


The projection for this year was revised up from 3.7% and that for 2019 from 3.6%.

The higher forecast was in part due to expectations that USA tax cuts would boost economic growth there, it said. The think tank believes the United Kingdom economy will expand by 1.3% this year, up from 1.2% in November, and by an unchanged 1.1% in 2019.

However, it said the global economy was vulnerable to an eruption of trade tensions after the Trump administration imposed import tariffs on steel and aluminium, a move that is expected to prompt retaliation from Europe and others.

"Industrial production, investment and trade growth have rebounded, with global trade growth reaching an estimated over 5 percent in 2017, and business and consumer confidence remain elevated", the OECD stated.

With tax cuts boosting the economy this and next year, the OECD forecast the upper bound of the target federal funds rate could reach 3.25% by the end of 2019, from 1.5% now. That hit is based on an extreme scenario of levies, but one that BE says is "no longer an impossible one". "Escalation of trade tensions would hurt the recovery".

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The OECD added that the tax and public spending reductions in the USA during the last three months and Germany's fiscal stimulus were key factors for upgrading global growth predictions in 2018 and 2019.

In contrast, stronger growth in France and Germany boosted the outlook for the broader euro zone to 2.3% for this year and 2.1% in 2019.

The OECD also warned of risks linked to the Group of 20 countries having total debt amounting to over 200 per cent of economic output, and stock valuations being at their highest since the early part of the century.

Growing inequality was also highlighted in the report, which showed the richest 10 per cent in OECD countries have 60 per cent more disposable income now than in 1985, but the bottom 10 per cent have only 20 per cent more.

United States tax cuts, announced by Trump since the OECD's November forecasts, were one reason why the growth outlook was stronger than it was four months ago, the thinktank said. Britain will be the slowest growing major economy, expanding just 1.3 per cent, with investment slowing "amidst continued uncertainty" about Brexit.