OECD cuts global growth forecast over trade, Brexit uncertainty

Aerial view of containers at a loading terminal in the port of Hamburg Germany

Aerial view of containers at a loading terminal in the port of Hamburg Germany

The Paris-based Organization for Economic Cooperation and Development (OECD) has again cut its economic forecast and warned that the worse is yet to come for the global economy.

The warning came as the OECD also slashed its growth forecast for the United Kingdom to 0.8 per cent for 2019 and 0.9 per cent for 2020, down from the 1.4 per cent and 1.1 per cent projected respectively in November.

The OECD projects that the global economy will grow by 3.3 per cent in 2019 and 3.4 per cent in 2020. However, the most striking point was the strong downgrade of Eurozone GDP growth, which it now forecasts at only 1% when only a few months ago it was expecting 1.8%.

"The global economy is facing increasingly serious headwinds".

The 19-nation eurozone was particularly hard hit, with predicted growth dropping from 1.8 percent to one percent.

The growth forecast for European powerhouse Germany sank to 0.7 percent from 1.4 percent, while Italy's fell from 0.9 percent growth into a recessive minus 0.2 percent.

Economic prospects are now weaker in almost all G20 countries than previously anticipated, the report said.

The OECD report highlighted that a "disorderly" Brexit would raise the costs for European economies substantially. Diplomats said talks in Brussels on Tuesday, led by British Prime Minister Theresa May's chief lawyer, Geoffrey Cox, failed to find common ground, with barely over three weeks to go before Britain's scheduled departure on March 29.

"The trade restrictions introduced previous year are a drag on growth, investment and living standards, particularly for low-income households", the report said.

It comes after the Bank of England warned on Tuesday that European Union authorities still needed to do more to help prevent disruption from a disorderly divorce, which could impact families and firms across Europe and potentially cause knock-on effects in Britain. "A sharper slowdown in any of the major regions could derail activity worldwide, especially if it spills over to the financial markets".

The OECD also highlighted the impact of policy uncertainty, namely in relation to Brexit.

Cutting its target for GDP growth from 6.5% to between 6% and 6.5%, China placed the blame on the trade war with the United States, which has seen the two countries swap tit-for-tat tariffs on a combined $360 billion worth of goods.

"Governments should intensify multilateral dialogue to limit risks and coordinate policy actions to avoid a further downturn", she added.

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