Towards a soft landing of the world economy, according to the OECD

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PARIS (Reuters) – The global economy is slowing amid trade tensions and general interest rate hikes and looks set for a soft landing, an exercise that will require a cooperative attitude from governments to be well negotiated, the report said. OECD.

In its autumn economic outlook released on Wednesday, the Organization for Economic Co-operation and Development is still forecasting global growth of 3.7% this year, but is now down just 3.5% in 2019, less than it expected in September, and sees it stabilize at this rate in 2020.

"We are returning to the long-term trend," said Laurence Boone, chief economist of the OECD, "we do not expect a more pronounced slowdown, but there are many risks."

She added that a soft landing is always difficult to negotiate and that the exercise will be complicated by trade tensions but also by the ongoing rebalancing of capital flows from emerging economies to countries that normalize their monetary policy, starting with United States.

The US administration's tariff offensive is already having an impact on world trade, with the OECD seeing annual growth fall below 4.0% in 2018-2020 when it was 5.2% in 2017.

Laurence Boone estimates that the trade war is already having a negative impact of 0.1 to 0.2 percentage point on world GDP and that it could be cut by 0.8 point by 2021 in case of escalation, with all the uncertainties that she would create.

In the short term, the US economy is doing rather well compared to other developed countries thanks to the support of the fiscal stimulus policy put in place by the Trump administration.

The OECD does not change its US GDP forecast, which continues to grow by 2.9% this year and 2.7% next year. But it will fall to 2.1% in 2020, the effect of tax cuts starting to dissipate and that of continuing trade tensions.


As for China, the organization anticipates a slowdown from 6.6% in 2018 to 6.0% in 2020, which would be a 30 year low for an economy that is highly exposed to escalating trade tensions.

For the eurozone, it is down 0.1 point its expectations for 2018 (1.9%) as for 2019 (1.8%), this slowdown is accentuated over 2020 (1.6%).

The largest revision is Germany, which is expected to grow by 1.6% this year and next – 0.3 and 0.2 percentage points lower than previously forecast and the same pace as expected for France – and would fall to 1.4% in 2020.

The OECD is also less optimistic for Italy, with GDP revised downwards by 0.2 point for 2018 and 2019, to 1.0% and then 0.9% respectively, believing that the effects of the country's expansionary fiscal government will be offset by higher inflation and slower job growth.

For the United Kingdom, it confirms forecast 1.3% growth for 2018, raises its forecast 2019 to 1.4% (+0.2 points), but expects a slowdown to 1.1% in 2020 and this " in the event that the exit of the European Union would be smooth.

The slowdown in global growth "is a reflection of the transition to less accommodating macroeconomic policies (…) and the still negative effects of trade tensions, tighter financial conditions and rising oil prices," the report said. OECD.

In this context, the organization urges policy makers to "restore confidence in international institutions and dialogue among all countries, including to provide a cooperative solution to trade discussions."

"The adoption of concrete measures at the G20 level would also be a positive signal, demonstrating that countries can act in a coordinated and concerted manner if growth is slower than expected," she says.

(Leigh Thomas and Yann Le Guernigou, edited by Yves Clarisse)