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Weak trade and investment threaten long-term growth: OECD

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Trade conflict, weak investment and persistent political uncertainty are weighing on the world economy and raising the risk of long-term stagnation, according to the OECD's latest Economic Outlook released on Thursday.

The world GDP growth is expected to be 2.9 per cent this year -- its lowest annual rate since the financial crisis -- and remain at 2.9 to 3 per cent in 2020 and 2021. Global GDP expanded 3.5 per cent in 2018.

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.

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.

"It will be a mistake to consider these changes as temporary factors that can be addressed with monetary or fiscal policy. They are structural," said OECD Chief Economist Laurence Boone while presenting the report.

"Without coordination for trade and global taxation, clear policy directions for the energy transition, uncertainty will continue to loom large and damage growth prospects," she said.

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

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

Two years of escalating conflict over tariffs -- principally between the United States and China -- has hit trade, is undermining investment and is putting jobs at risk. 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. Digitalisation is transforming 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.

"The alarm bells are ringing loud and clear," said OECD Secretary-General Angel Gurria in Beijing where he was meeting Chinese Premier Li Keqiang and other heads of international organisations.

"Unless governments take decisive action to help boost investment, adapt their economies to the challenges of our time and build an open, fair and rules-based trading system, we are heading for a long-term future of low growth and declining living standards."

Aggregate investment growth in the G20 countries, excluding China, slowed from annual rate of 5 per cent at the start of 2018 to only 1 per cent in the first half of 2019, the outlook shows.

Global trade volume growth of goods and services is estimated to have slowed to 1 per cent this year -- its lowest rate since 2009. Although a modest pick up is projected, it is expected to remain weak.

The outlook warns that any further escalation of the trade conflict will disrupt supply networks and weigh on confidence, jobs and incomes. Uncertainty about a future EU-Britain 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.

The OECD is also looking at how 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.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, November 21 2019. 17:39 IST
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