Global Growth Hits 10-Year Low as Trade War Lingers

A new report by the Organization for Economic Cooperation and Development paints a bleak picture for global growth. The OECD indicates that 2019 global growth will slow to a level not seen since the onset of the financial crisis. According to the study, the world economy will expand by just 2.9%, which would be the weakest annual growth in a decade.

The September 19 report provides further evidence that the global economy is not as healthy as it may seem in the United States. The data also emphasizes that the effects of the U.S.-China trade war are not limited to the two nations.

As it stands today, the U.S. and China have imposed tariffs on thousands of each other’s products. The two nations have also ratcheted up their rhetoric. In addition to leaving existing tariffs in place, they are threatening to expand them to other products in coming months. This is a larger concern for the global economy as those tariffs will include a higher number of consumer products. As a direct hit on businesses and households, such tariffs would put a dent in the U.S. consumer confidence number.

Consumer confidence numbers in the U.S. have led some analyst to project a recession is not imminent. If that number were to turn lower, so may expectations for a recession. “While solid consumer demand has supported service sector output to date, persistent weakness in manufacturing sectors and continuing trade tensions could weaken employment growth, household income and spending,” the OECD report said.

The Paris-based organization is forecasting that global growth may remain weak (at around 3%) in 2020. They also projected that figure could fall further if the existing tariffs remain in place.

“The global economy is facing increasingly serious headwinds and slow growth is becoming worryingly entrenched,” said Laurence Boone, the chief economist at the OECD. “The uncertainty provoked by the continuing trade tensions has been long-lasting, reducing activity worldwide and jeopardizing our economic future.”

In addition to the trade war, the OECD cited uncertainty surrounding Brexit as a reason for the weak 2020 outlook. A Brexit without a deal between the United Kingdom and the European Union would result in likely diminished output.

The OECD report is somewhat supported by comments made by Federal Reserve Chairman Jay Powell who, for the first time, said that trade policy tensions were a contributing factor to their decision to cut interest rates an additional quarter point (25 basis points) at the conclusion of their meeting on September 18.  “Trade policy tensions have waxed and waned,” said Powell, “and elevated uncertainty is weighing on U.S. investments and exports.”

 

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