Published: Thu, March 09, 2017
Economy | By Melissa Porter

OECD warns political uncertainty, rate hikes, protectionism could derail global growth

OECD warns political uncertainty, rate hikes, protectionism could derail global growth

Publication of the OECD's March global Interim Economic Outlook, entitled Will risks derail the modest recovery? comes as the CME Group FedWatch tool calculates that there's an 84% probability that the Federal Reserve will increase its interest rate target by a quarter of a percentage point to the 0.75%-1.00% range this month and a 40% probability of another quarter-point rise by June.

The OECD also raised its estimates for several of the world's biggest economies, including the United States and China, but kept its world economic estimate unchanged at 3.3 per cent - just slightly better than last year's weak 3.0 per cent.

Foremost among these is the risk of an outbreak of protectionism that would trigger a damaging cycle of retaliation.

The rapid growth of private sector credit and the relatively high level of indebtedness is a key risk in a number of emerging markets and housing valuations are a matter of concern in some advanced economies, it added. "We still have this slow, sluggish productivity growth and persistent inequality".

"Disconnect between financial markets and fundamentals, potential market volatility, financial vulnerabilities and policy uncertainties could, however, derail the modest recovery", the OECD said in its report. Coherent and committed policy action is needed to simultaneously raise growth rates and improve inclusiveness'.

Among the specific country outlooks highlighted by the OECD were the USA, where domestic demand is set to strengthen, supported by gains in household wealth and an upturn in oil production.

The think-tank said Canada's economy will be supported this year by export growth, a better market for commodities and government spending initiatives.

The new prediction is in line with the Eurozone's expected growth of 1.6% although due to Trump's spending promises the U.S. economy is forecast at 2.4% for 2017. For 2018, the rate is set to quicken to at 3.6 percent.

In Japan, fiscal easing and improvements to women's labour force participation will help GDP growth pick up this year to 1.2% from 1.0% in 2016.

"UK growth is expected to ease further as rising inflation weighs on real incomes and consumption, and business investment weakens amidst uncertainty about the United Kingdom's future trading relations with its partners".

As to Brazil and Russian Federation, both suffering a deep recession, would register growth recovery thanks to higher commodity prices and easing inflation, according to the OECD report.

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