OECD: Trade War is Threatening Global Growth Outlook

THE prospect of a trade war is threatening the global growth outlook, which otherwise is on course for a 40-year low in unemployment, the OECD said on Wednesday.

Global growth is set to nudge up from 3.8 per cent this year to 3.9 per cent in 2019, the Organisation for Economic Cooperation and Development forecast in its biannual Economic Outlook.

The Paris-based policy forum made up mainly of developed countries had in March pencilled in an estimate of 3.9 per cent for both years but trimmed its outlook for 2018 due to a weak start to the year because of temporary factors like bad weather.

The OECD said budgetary easing had taken over from central bank stimulus as the main motor of global growth with three-fourths of its member countries now estimated to be loosening purse-strings, led by massive US tax cuts.

Against that backdrop, the overall OECD unemployment rate was seen falling to 5 per cent by the end of 2019, hitting the lowest level since 1980 and setting the stage for so-far elusive growth in workers' wages.

"In spite of all this good news, risks loom large for the global outlook. What are these risks? First and foremost, an escalation of trade tensions should be avoided," acting OECD chief economist Alvaro Pereira wrote in an introduction to the organisation's Economic Outlook.

The warning comes as European governments brace for the expiration of temporary exemptions on new US steel and aluminium tariffs on June 1, which has outraged Washington's closest allies.

Though the number of trade restrictions has crept higher over the last decade, further measures could create a significant drag on growth because the global economy is now more interconnected than ever before, the OECD said.