Trade barriers could threaten global growth, OECD warns

It said rising inflation looks set to weigh on consumers and business investment will slow amid uncertainty about Britain's trading relationship with the European Union after Brexit.

That follows global growth of three per cent a year ago.

Additionally, "financial market expectations imply that a large divergence in short-term interest rates between the major advanced economies will open up in the coming years", OECD warned. The OECD said this has led to higher levels of debt and inflated asset prices.

"As past experience has shown, a rapid rise of house prices can be a precursor of an economic downturn", it said.

"We have to remember the extent to which there was an explicit very forceful policy response by the Bank of England and a change in fiscal stance by the government", said OECD Chief Economist Catherine Mann.

Citing anticipated fiscal expansion, the OECD now expects the USA economy - the world's largest - to grow 2.4 percent in 2017, up from 2.3 percent projected previously. "These are expected to catalyze private economic activity and push up global demand", the organization said. GDP growth is expected to pick up to 2.4% this year and 2.8% in 2018, supported by an anticipated fiscal expansion, despite higher long-term interest rates and a stronger dollar.

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Yet the OECD's forecast is loaded with caution.

Growth in China is projected to slip further to 6.5% this year and to 6.3% in 2018 as the economy makes a necessary transition away from a reliance on external demand and heavy industry toward domestic consumption and services.

The organization noted the global economy remains in a "low-growth trap".

With monetary policy relaxed and some fiscal policy easing in the euro zone, growth was seen steady this and next year at 1.6 per cent, with the 2017 forecast unchanged and the 2018 forecast trimmed from 1.7 per cent in November. "The positive assessment reflected in market valuations appears disconnected from real economy prospects", the OECD said.

The Organisation for Economic Cooperation and Development (OECD) has become the latest major worldwide organisation to increase its growth forecasts for the United Kingdom, effectively acknowledging that previous forecasts were too pessimistic about the impact of last June's vote to leave the European Union. "The pace will remain too slow to address some of the fundamental issues facing the global economy, particularly with regard to productivity growth and inclusiveness".

  • Darren Santiago