PARIS • The global economy is shrouded in “high uncertainty” as the outlook for emerging markets (EMs) deteriorates sharply and trade tensions intensify, the Organisation for Economic Cooperation and Development (OECD) said.
The gloomy analysis has pushed the Paris-based institution to cut its global growth forecasts for this year and next with particularly sharp revisions for Turkey, Argentina, South Africa and Brazil.
Since its last economic forecasts in May, the OECD said differences between economies have widened, confidence has fallen and business surveys across the world point to a slowdown.
Simply put — “the expansion may now have peaked”, the OECD said.
Trade is a central source of risk in the OECD’s analysis. Tariffs and policy changes have already buffeted flows and prices in some areas, and affected sentiment and investment plans. Global trade has cooled faster than expected, falling to around 3% in the first half of 2018 from 5% in 2017.
As the US-China trade war deepened this week with Beijing saying it will retaliate to US President Donald Trump’s order for more tariffs, the OECD warned things could get much worse.
“A further rise in trade tensions would have significant adverse effects on global investment, jobs and living standards.”
The rise in protectionism is an added threat for EM economies, already suffering from tighter financial conditions and weaker growth prospects. The OECD slashed its forecast for Turkish growth next year by 4.5 percentage points to only 0.5%. For Argentina, it now forecasts a 1.9% contraction this year and stagnation in 2019.
For now, broader contagion across EMs has been avoided, the OECD said. But it warned there could be “deeper tensions” and an even wider decline in investor sentiment, particularly if central banks in advanced economies tighten monetary policy faster than expected.