Chief economist update: Cloudy 2020 vision for OECD

Scratch that and lower it to 2.9%.

In its 'Interim Economic Outlook' report published on September 19, the OECD lowered its world economic growth forecast from 3.6% in 2018 to 2.9% (down from 3.2% forecast in May 2019) this year and 3.0% (down from 3.4%) in 2020.

The Institution's latest report (November) has world GDP growth downgrade another notch to 2.9% by the end of the 2020, warning that: "Growth could be weaker still if downside risks materialise or interact, including from a further escalation of trade and cross-border investment policy restrictions, continued uncertainty about Brexit, a failure of policy stimulus to prevent a sharper slowdown in China, and financial vulnerabilities from the tensions between slowing growth, high corporate debt and deteriorating credit quality."

"A persistent upward spike in oil prices, if geopolitical tensions were to strengthen again, would also weaken growth prospects."

"On the upside, decisive actions by policymakers to reduce policy-related uncertainty and improve medium-term growth prospects, including measures to restore trade policy certainty, would boost confidence around the world. In particular, a full or partial reversal of the trade restraints implemented or announced this year would boost growth, though uncertainties about future trade policy would likely linger."

The OECD's warning on "trade policy uncertainty" comes at a time when the expected de-escalation of the Sino-US trade friction appears to have a hit a stumbling block.

Moreover, Factset notes 'Politico's' report that: "Trump administration officials considering starting a new trade investigation into the EU as the window closes on imposing auto tariffs."

This equals more uncertainty for business and with it, continued postponement of business investment.

The risk of a further escalation in the trade war - both in the amount of tariffs imposed and the breadth of countries affected - are inhibiting companies' capital spending, notwithstanding low and lowered interest rates (with renewed central bank balance sheet expansion to boot), which have reduced the hurdle rates on planned investments.

OECD figures show G7 capital investment steadily dropping from an annual rate of 4.3% in the fourth quarter of 2017 to 1.5% in the second quarter of this year.

Selected quotations from chief executives published in the OECD report indicate continued investment weakness.

"We will keep capital spending "tight" until we get "better visibility". A trade deal is need to "get some confidence back in this market," Jim Fitterling, chief executive of US chemicals producer Dow said in The Economist earlier this year.

"The future is going to be more of the same ... increase in uncertainty," Kaldoon Al Mubarak, chief executive Mubadala Investment Company said.

Meanwhile: "We're still in the middle of really trying to understand where the trade talks are going to land and how that's going to impact the overall economy," GM chief executive Mary Barra told the Washington Post.

The OECD prescribes: "If downside risks materialise and global growth looks set to be significantly weaker than projected, co-ordinated policy action within and across all the major economies would provide the most effective and timely counterweight."

Downside risks are sure to materialise given Trump's continuing crusade to "Make America Great Again" at the expense of its neighbours.

We can all forget about "co-ordinated policy action" as well. Trump will go his own way in his determination to win.

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