The Paris-based Organization for Economic Cooperation and Development (OECD) has again cut its economic forecast and warned that the worse is yet to come for the global economy.
"The global expansion continues to lose momentum,’" said the OECD as it downgraded its forecast for almost every Group of 20 nation’s economy. "Growth outcomes could be weaker still if downside risks materialize or interact."
According to the OECD, the global economy is suffering more than expected from trade tensions and political uncertainty which are clouding prospects particularly in Europe. Since the organization last downgraded its forecast in November, little has gone right for the world’s biggest economies. Weakness in the euro area and China are proving more persistent, trade growth has slowed sharply and uncertainty over Brexit continues.
If anything, things could get worse as risks pile up, including further trade barriers, a disorderly U.K. withdrawal from the European Union or financial vulnerabilities from elevated debt. Italy’s economy may see its first full-year contraction since 2013.
Central banks, including the U.S. Federal Reserve have responded to the changed circumstances, and the European Central Bank may soon follow. China, forced to lower its goal for economic growth this week, has rolled out tax cuts to stimulate its economy.
The OECD outlook goes against hopes that sources of weakness at the end of 2018, including lower confidence, would prove temporary. That creates a headache for policy makers who may now need to find more combative solutions with limited room for maneuver on the fiscal and monetary side.
The situation is particularly acute in Europe, where the OECD cut its growth outlook for this year to 1% from 1.8%. European policy makers are meeting in Frankfurt this week, and the OECD said they should signal a delay to any rate hikes and possibly implement new measures to improve funding for banks. Both measures are expected to be discussed in Frankfurt on Thursday.
The OECD also singled out Brexit as a persistent threat. If the U.K. doesn’t secure a deal, it sees a risk of a near-term recession, with "sizable negative spillovers" on other countries.
