Photo: Koji Sasahara / AP
Moderate recovery of global GDP risks threaten economic nationalism, different approaches to monetary policy, bubbles in stock markets and the volatility in the currency markets, it follows from the next review of the OECD
Too slow growth
The organization for economic cooperation and development (OECD) predicts the recovery of the world economy in 2017 and 2018, but warns of many risks to global growth, which characterizes as “too slow”. Its rates are less than the annual average during the two decades preceding the global financial crisis. This is a consequence of insufficient investment and productivity growth, conclude the experts of the OECD. The organization has confirmed its November estimate of global growth for 2017 and 2018 at the rate of 3.3 and 3.6%, respectively, follows from its regular review. In 2016, global GDP rose 3%.
“Economic growth accelerated, however, the fact that no solid Foundation, a cause for concern”, — quotes Bloomberg words of the chief economist of the OECD Catherine Mann. — We continue to see sluggish productivity growth and the constantly increasing inequality.” In such circumstances, consumption and investment cannot reach the required level, which hinders recovery, she added. Moderate recovery of global GDP risks threaten economic nationalism, different approaches to monetary policy, the bubble in the stock markets and fluctuations in the currency markets, said the OECD. Although these risks may not occur in the near future, they remain real, and a series of significant shocks could derail the global economic recovery, the report says.
Among the key factors of concern for the experts of the OECD, — policy of the administration of Donald trump, although she’s directly in the review is not mentioned. In particular, we are talking about the threats of the White house to impose duties on imports from countries that, in his opinion, received an unfair commercial advantage over the United States. “We believe that the markets will quickly react to the rise of protectionism and it will have a significant negative effect on growth, explained Mann. In this scenario, the business will raise prices and reduce trading activity”.
“Economic nationalism is a significant risk, since we don’t know what such a policy could eventually lead to”, — quotes Reuters the words Mann. Although protectionist rhetoric sounds not only in the United States, OECD, the economist, estimated that the increase in the value of U.S. imports by 10% will lead to an increase in the value of U.S. exports by 15%. The increase in trade barriers in the world’s leading economies — Europe, USA and China — will hit trade and GDP growth, especially in those countries that will go to such measures, the authors of the review.
The period of volatility
In the context of moderate growth in most countries, the financial markets are detached from the fundamentals of the economy, because consumer spending and investments remain at a low level.
According to the OECD, the difference in approaches to monetary policy between Central banks of leading world economies can increase the tension on the financial markets. The fed is expected to raise interest rates in mid-March that could be the beginning of monetary policy tightening in the United States. The ECB, by contrast, plans to continue the policy of stimulating the European economy in 2017. It threatens to increase volatility in currency markets and carries risks to the developing markets, which in recent years resorted to the cheap dollar borrowing. Such a risk, in particular, exposed China, with its high level of debt load of the private sector.
The American economy will grow in 2017, 2.4% (+0.1% from the November forecast) and 2.8% in 2018 (minus 0.2% from November’s forecast), says the OECD. Growth will contribute to the fiscal stimulus measures, especially in 2018, which will offset the effects of rising interest rates and a stronger dollar.
GDP growth in the Eurozone will be 1.6% in 2017 and 2018, expects OECD. The growth of the British economy will slow from 1.8% in 2016 to 1.6% in 2017, and 1% in 2018 amid rising inflation and reduce investment in terms of Brexit, predicts the organization. In November, the forecast for 2017 and 2018 was 1.2 and 1% respectively.
The Japanese economy will grow by 1.2% in 2017 against the background of easing of monetary policy, but will contract in 2018, when growth will be only 0.8%, says the OECD. In November, the organization predicted an increase in Japan’s GDP by 1% in 2017 and 0.8% in 2018.
The Russian economy
In its review, the OECD does not separate the growth of Russia’s GDP, but notes that the rise in commodities and decline in inflation will support economic recovery of the country. According to the organization, the Russian authorities consistently reduced the discount rate from December 2014, there is a possibility for additional easing of monetary policy. The OECD believes that the country’s increasing debt problem, which in turn leads to inefficient allocation of financial resources in periods of economic growth and creates risks for the banking system. In its November survey, the OECD predicted growth of 0.6% in 2017 (same as the base forecast of Ministry of economic development); in 2018, the OECD expected growth of 1%, and the Ministry of 1.7%.