OECD cuts global growth forecasts as shifts in China hit trade
A dramatic slowdown in world trade, prompted by shifts in China and other emerging markets, risks weighing down the global recovery, the OECD has said.
The Paris-based group of mainly developed economies cut its growth forecasts, predicting the world economy will expand by 2.9 per cent this year and by 3.3 per cent in 2016. This compares with earlier projections of 3 per cent and 3.6 per cent respectively.
The downward revisions, in the OECD’s twice-yearly Economic Outlook, come only weeks after the International Monetary Fund said the world economy would grow at the slowest pace since the crisis.
Fears over the state of the Chinese economy have jolted markets since the summer, prompting the Bank of England to delay a much-anticipated rise in interest rates. The US Federal Reserve has also held off increasing borrowing costs for the first time since the crisis but is expected to do so next month.
“Global growth prospects have clouded this year,” the OECD said.
It added that many countries might need to reassess monetary and fiscal policy because of increasing signs that underlying growth would not be as strong as expected. In particular, the OECD emphasised the “dramatic slowdown in global trade growth”, which is expected to be only 2 per cent this year, compared with 3.4 per cent in 2014 and far more in the early years of the decade.
Trade has generally increased at such meagre rates only when growth has also disappointed.
“World trade has been a bellwether for global output,” said Catherine Mann, OECD chief economist. “The growth rates of global trade observed so far in 2015 have, in the past, been associated with global recession.”
The lacklustre prospects for trade and output largely reflect continuing weaknesses in emerging markets, the OECD said. In particular, Beijing’s transition from a growth model based on investment spending towards one focused on consumption has led to a sharp fall in commodity prices and may be reducing China’s role in world trade.
The OECD noted that the decline in imports by volume to China accounted for around a third of the slowdown in non-OECD import growth between 2014 and 2015, damping foreign demand for other Asian economies.
But the OECD still expects China to grow by 6.8 per cent in 2015, 0.1 percentage point faster than predicted two months ago. Growth will then slow to 6.5 per cent in 2016, unchanged from its earlier prediction.
The Economic Outlook expects the euro area to grow by 1.5 per cent this year and 1.8 per cent in 2016, marginally lower than expected in September. Germany’s forecasts have been trimmed lower, while Italy is now expected to grow slightly faster. The US economy is forecast to expand by 2.5 per cent in 2016, slightly lower than the 2.6 per cent growth forecast in September.
The OECD warns that the normalisation of monetary policy should proceed “cautiously”.
The Paris-based group of mainly developed economies cut its growth forecasts, predicting the world economy will expand by 2.9 per cent this year and by 3.3 per cent in 2016. This compares with earlier projections of 3 per cent and 3.6 per cent respectively.
The downward revisions, in the OECD’s twice-yearly Economic Outlook, come only weeks after the International Monetary Fund said the world economy would grow at the slowest pace since the crisis.
Fears over the state of the Chinese economy have jolted markets since the summer, prompting the Bank of England to delay a much-anticipated rise in interest rates. The US Federal Reserve has also held off increasing borrowing costs for the first time since the crisis but is expected to do so next month.
“Global growth prospects have clouded this year,” the OECD said.
It added that many countries might need to reassess monetary and fiscal policy because of increasing signs that underlying growth would not be as strong as expected. In particular, the OECD emphasised the “dramatic slowdown in global trade growth”, which is expected to be only 2 per cent this year, compared with 3.4 per cent in 2014 and far more in the early years of the decade.
Trade has generally increased at such meagre rates only when growth has also disappointed.
“World trade has been a bellwether for global output,” said Catherine Mann, OECD chief economist. “The growth rates of global trade observed so far in 2015 have, in the past, been associated with global recession.”
The lacklustre prospects for trade and output largely reflect continuing weaknesses in emerging markets, the OECD said. In particular, Beijing’s transition from a growth model based on investment spending towards one focused on consumption has led to a sharp fall in commodity prices and may be reducing China’s role in world trade.
The OECD noted that the decline in imports by volume to China accounted for around a third of the slowdown in non-OECD import growth between 2014 and 2015, damping foreign demand for other Asian economies.
But the OECD still expects China to grow by 6.8 per cent in 2015, 0.1 percentage point faster than predicted two months ago. Growth will then slow to 6.5 per cent in 2016, unchanged from its earlier prediction.
The Economic Outlook expects the euro area to grow by 1.5 per cent this year and 1.8 per cent in 2016, marginally lower than expected in September. Germany’s forecasts have been trimmed lower, while Italy is now expected to grow slightly faster. The US economy is forecast to expand by 2.5 per cent in 2016, slightly lower than the 2.6 per cent growth forecast in September.
The OECD warns that the normalisation of monetary policy should proceed “cautiously”.
