OECD Predicts Asian Economy Slows for Next Five Years
The world economy is projected to grow by a decade-low 2.9 percent this year and 2020 - Photo: Special

JAKARTA (TheInsiderStories) – The world economy is projected to grow by a decade-low 2.9 percent this year and 2020, the Organisation for Economic Cooperation and Development (OECD) said in its latest Economic Outlook released Thursday (11/21), trimming its 2020 forecast from an estimate of 3.0 percent in September.

Emphasizing the trade conflict magnitude effect, weak business investment, and persistent political uncertainty, the Paris-based agency edge up the growth to 3.0 percent in 2021, but only if a myriad of risks ranging from trade wars to an unexpectedly sharp Chinese slowdown is contained.

Bold action is needed to address both the high levels of uncertainty facing businesses as well as the fundamental changes taking place in the global economy, the agency said.

Policy-making must lead the transition to cleaner energy and to an increasingly digital world. Governments must work together urgently to boost investment and establish fair international rules on taxation and trade, the OECD noted.

“It would be a mistake to consider these changes as temporary factors that can be addressed with monetary or fiscal policy: they are structural. Without coordination for trade and global taxation, clear policy directions for the energy transition, uncertainty will continue to loom large and damage growth prospects,” said OECD Chief Economist Laurence Boone.

The slowdown involves advanced and emerging-market economies alike although its severity varies according to the importance of trade in individual countries, the outlook said.

Growth in the United States (US) is forecast to slow to 2 percent in 2020 and 2021. In the euro area and Japan, growth is expected at around 1 percent while the deceleration in China’s expansion is set to reach 5.5 percent in 2021, compared with 6.6 percent last year.

“Two years of escalating conflict over tariffs, principally between the US and China, has hit trade, is undermining business investment and is putting jobs at risk,” the OECD noted, saying although household spending has been holding up, signs of it weakening are emerging. Car sales have declined sharply over the past year.

While the fragility of the world economy can be blamed in large part on deliberate policy decisions, it also reflects deeper, structural changes, says the outlook.

Digitalization is transforming business models while climate and demographic changes are already disrupting existing patterns of activity. China, meanwhile, is rebalancing away from a reliance on exports and manufacturing towards consumption and services.

Aggregate investment growth in the G20 countries, excluding China, slowed from an annual rate of 5 percent at the start of 2018 to only 1 percent in the first half of 2019, the outlook shows. Global trade volume growth of goods and services is estimated to have slowed to 1 percent this year – its lowest rate since 2009. Although a modest pick up is projected, it is expected to remain weak.

OECD warns that any further escalation of the trade conflict would disrupt supply networks and weigh on confidence, jobs, and incomes. Uncertainty about a future EU-UK trade relationship poses a further risk to growth as does the current high level of corporate debt.

For the OECD, strengthening international cooperation is crucial, particularly the need to agree on transparent and fair international taxation and trade rules. Dedicated public investment funds can be geared to help meet long-term objectives such as ensuring society benefits fully from advances in digital technology or facilitating the transition to a low carbon future.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com