Donald Trump has been warned a trade war could impact on global economic growth
According to the latest forecasts from economic think tank Organisation for Economic Cooperation and Development (OECD), the global economy will grow by 3.9 percent in both 2018 and 2019 – a 0.3 percentage point upgrade in each year from its last set of predictions in November.
In November the thinktank said the global economy would grow by 3.6 percent last year, 3.7 percent in 2018 and 3.6 percent in 2019.
But in the wake of US tax cuts unveiled by Mr Trump and the threat of a trade war between the US and the European Union over steel and aluminium tariffs, the OECD has warned the global economy is at risk.
OECD acting chief economist Alvaro Pereira warned the US President’s announced tariffs of 25 percent on imported steel and 10 percent on imported aluminium, had left the global economy vulnerable to a tit-for-tat war.
He said: “In this environment, an escalation of trade tensions would be damaging for growth and jobs.
“This could obviously threaten the recovery.
“Certainly we believe this is a significant risk, so we hope that it doesn’t materialise because it would be fairly damaging.
“Countries should rely on collective solutions like the Global Forum on Steel Excess Capacity to address specific issues.
“Safeguarding the rules-based international trading system is key.”
Mr Pereira added the introduction of the trade tariffs by the US President is not the right way of solving the problem of excess steel production and has urged the Trump administration to seek a collective solution through the OECD.
Alvaro Pereira has warned that global recovery could be threatened
The thinktank has revised up its forecast for US growth by 0.4 points to 2.9 percent this year and by 0.7 points to 2.8 percent in 2019 as a result of the increase in demand from Mr Trump’s tax cuts.
But the OECD believes increased growth in this economy could result in four interest rate increases from the Federal Reserve, the US central bank, over the coming months.
Despite the potential positive outlook for the global economy, the prospects for the UK as it approaches the date for Brexit in March 2019 remain clouded.
The OECD is predicting the economy will grow by 1.3 percent this year, up from 1.2 percent in November, and by an unchanged 1.1 percent in 2019.
The warning comes as Chancellor Phillip Hammond made his Spring Statement.
He told the House of Commons growth was forecast to be 1.5 percent this year, up from 1.4 percent forecast by the Office for Budget Responsibility in November, with the forecast unchanged for 2019 and 2020 unchanged at 1.3 percent.
Parliamentary Home Affairs Committee chairman Yvette Cooper tweeted: “£1.5bn allocated for Brexit preparations but no sign of that £350m extra a week for the NHS.”
Pro-EU Labour MP Chuka Umunna wrote that the growth in each of the three years ahead “is forecast to be far lower” than what was projected before the EU referendum, which he said was “thanks to Brexit”.
Elsewhere, the OECD has also revised up its forecast for Germany, with tax cuts included in the deal that has formed a coalition government in the country predicted to lift growth by 0.1 points to 2.4 percent this year and by 0.3 points to 2.2 percent in 2019.
It is also sees the same positive shift for France, claiming Emmanuel Macron’s social welfare, tax and labour market reforms will help it narrow the gap with Germany.
Growth has been revised up by 0.4 points in 2018 and by 0.2 points in 2019. For the eurozone as a whole, growth is forecasted at 2.3 percent this year and 2.1 percent in 2019, a 0.2 point upgrade in each year.