World economy on track for its worst year since 2009, OECD says

Organisation downgrades economic forecasts, blaming US-China trade war and warning on Brexit

The trade war between the US and China has been raging since 2018 (Getty)

This year will be the worst for the global economy since the financial crisis, the OECD has predicted, pointing the finger at the US-China trade conflict but also noting the risks from a no-deal Brexit.

The world’s economic output will grow by 2.9 per cent in 2019 and 3 per cent in 2020 – the weakest rates since the contraction in 2009 and lower than the OECD forecast in May.

The organisation’s latest Economic Outlook downgrades 2019 forecasts for 14 out of the world’s biggest 19 economies, most heavily for those most exposed to the recent decline in global trade and investment. But it also includes a small downward revision for Britain.

The OECD focused on the trade spat between the US and China, the world’s two largest economies, but noted that Donald Trump may also pick a fight with the EU, with a US decision due in the coming months on whether to impose tariffs on car imports.

“The trade conflicts [are] the principal factor undermining confidence, growth and job creation across the world economy,” the OECD said.

“Continuation of trade restrictions and political uncertainty could bring additional adverse effects.”

It went on to single out the uncertainty around the timing and nature of Brexit. Even a “relatively smooth” no-deal departure, with fully operational border infrastructure, could push the UK into recession in 2020 and reduce production in a number of sectors in the EU, the OECD added.

That scenario will set Britain on a slower growth path over the next few years at least, shaving nearly 3 per cent off annual GDP in 2022, while the comparable impact on the euro zone will be a 0.6 per cent loss.

In July the IMF also forecast the slowest global economic growth in a decade for this year. It was still more upbeat than the OECD, pencilling in 3.2 per cent growth, but that was before the latest imposition of tit-for-tat tariffs by the US and China.

On Thursday the OECD urged governments in developed countries to loosen the purse strings in order to support their economies.

“The global economy is facing increasingly serious headwinds and slow growth is becoming worryingly entrenched,” said Laurence Boone, the organisation’s chief economist.

“Governments need to seize the opportunity afforded by today’s low interest rates to renew investment in infrastructure and promote the economy of the future.”

That echoed last week’s call from Mario Draghi, the outgoing president of the European Central Bank, for “fiscal policy to take charge” after years of central bankers doing the heavy lifting through interest rate cuts and so-called quantitative easing.