OECD Economic update
Recent geopolitical developments could disrupt global economic recovery
Many economist point to the updated global economic indicators and have agreed that the global economy is recovering at a steady pace. As of the writing of this article Department of Commerce updated the U.S. fourth quarter GDP up to 2.1%.
The silver lining however also comes with a few cautions, the International Monetary Fund (IMF) and the Organisation for Economic Cooperation and Development (OECD) have recently expressed concerns about the fact that growth remains tepid and remains fragile could be rapidly disrupted by current and projected geopolitical events.
Economists point to many recent examples Japan manufacturing sector slow down, Global economic growth predictions, especially impact of Brexit, and other developments such as President Trump’s agenda and lack of uniform interest rate policies by the global banks.
The recently published Interim Economic Outlook report by OECD projects global growth to pick up in 2018, around 3.6% vs 3.3% projection from last year.
Report however does clearly state that the expected economic growth may not improve the living conditions for a broader range of population.
OECD’s Angel Gurria said: “Growth is still too weak and its benefits too narrowly focused to make any real difference to those who have been hard hit by the crisis and who are left behind” on the report.
The report stated that the “strength of financial market valuations appears disconnected to the outlook for the real economy, where the growth of consumption and investment remains subdued.”
Since the elections in the US, the stock market has improved in anticipation of broader tax cuts. Economists and investors are projecting increased corporate growth, infrastructure investments and spending.
The first blow to the U.S. stock market came when the GOP’s plan to repeal and replacement Affordable Care Act failed. Events likes these highlight the difficulties the administration may have to face to implement it’s short and long term policies such as tax reform.
The Interim Economic Outlook Report clearly highlights risk to the global economies financial due to interest rates across major markets. The Federal Reserve in U.S. is actively managing the interest rates, further adjustments to the interest rates are expected during the year. However, in EU the European Central Bank (ECB) is continuing with its quantitative easing strategies which will keep the interest rates very low, Brexit has further complicated ECB’s approach towards interest rates.
Brexit and Trump’s “America First” agenda is also driving the increase “Protectionism” which could have long lasting effects on global trade, and monetary policies. Globally all major corporations will have to rethink their Supply Chain Strategies. OECD warns that a “roll-back of existing trades policies and openness would be costly with a significant share of jobs in many countries linked to participation in global value chains”. Recently Australian ambassadors are considering a “reset” of their foreign policy.
The greatest risk to the global economy was not rising prices for commodities or financial and currency crises but what is called a “geopolitical recession.” This was a reference to Brexit, withdrawal of Britain from the European Union, which formally began this week, and the increasingly protectionist policies emerging from the US.
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