OECD Sees Better Outlook, if Trade Escalation Avoided

OECD urges world to play by trade rules as tariff row rages

Trade tensions are threatening the best global economic growth outlook in seven years, the OECD said on Tuesday, adding that four US rate rises are likely this year as tax cuts stoke the world's biggest economy while Brexit will drag on Britain.

OECD Acting Chief Economist Alvaro Pereira observed: "In this environment, an escalation of trade tensions would be damaging for growth and jobs".

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.

U.S. President Donald Trump last week formally signed proclamations to impose a 25-percent tariff on imported steel and a 10-percent tariff on aluminum, causing mounting dissent among business groups and trading partners around the world.

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 percent by the end of 2019 from 1.5 percent now.

It credited tax cuts in the United States, the world's largest economy, for much of the upgrade - though the global forum warned that protectionist policies were a big risk factor in the forecast. That's up from 3.7 per cent and 3.6 per cent respectively compared with its November projections.

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Robust exports to Asia and the effect of a supplementary budget for fiscal 2017 through March will help support Japan's economic growth, the OECD said as it lifted its forecasts for the world's third biggest economy also for both years.

On Britain, the OECD struck a particularly cautious note, pencilling in growth of only 1.3 per cent this year. The Paris-based organization had expected growth to be 1.2 percent in 2018 and 1.0 percent in 2019.

With the euro area economy resilient, rising inflation would allow the European Central Bank to reduce its bond purchases gradually this year and subsequently phase out its negative interest rate policy, the OECD said.

The fastest growth this year will be India, with expansion of 7.2 per cent, followed by China at 6.7 per cent, and Turkey and Indonesia both at 5.3 per cent - all revised upwards since November.

"Countries should rely on collective solutions like the Global Forum on Steel Excess Capacity to address specific issues".

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