Photographer: Tim Rue/Bloomberg

OECD Sees Globalization Stalling as Weak Trade Hurts Economy

  • World growth forecast cut after trade drop in first quarter
  • Protectionism seen undermining global prosperity: OECD

A collapse in trade growth suggests that globalization may be stalling and is contributing to a stagnation in world economic output, the Organization for Economic Cooperation and Development said.

The OECD trimmed its global growth forecasts by 0.1 point for this year and next to 2.9 percent and 3.2 percent, respectively. The volume of world trade declined in the first quarter and will fall short of overall output growth in the full year, the Paris-based organization said Wednesday in a report.

With Republican presidential candidate Donald Trump threatening to slap tariffs on Chinese imports and contenders for France’s 2017 presidential election advocating protectionism, the OECD warned that a key driver of prosperity in recent decades as increasingly under threat.

Employees place suit jackets in plastic covers at a factory operated by the Shandong Ruyi Technology Group in Jining, China, on Monday, May 30, 2016. Shandong got a boost in the past from its proximity to Japan and South Korea, the source of much of its early investment. Now, it's trying to maintain the high growth rate needed to make the same leap they did: from middle- to high-income status.
Republican presidential candidate Donald Trump is threatening to slap tariffs on Chinese imports.
Photographer: Qilai Shen/Bloomberg

“Trade growth rates have deteriorated dramatically since the financial crisis,” OECD Chief Economist Catherine Mann said in an interview. “Some people might say this is a good thing. No, this is damaging and it shows up as a decline in productivity growth.”

Increasing trade fueled the expansion of the world economy between the mid 1980s and the mid 1990s, with trade growing at more than twice the pace of global output by the end of the final decade of the last century.

Source: OECD

Since the 2008 financial crisis, policy makers have struggled to revive both trade and growth. The OECD warned Wednesday that the expansions in developed economies are weakening as major emerging market commodity producers show only a “gradual improvement.”

The U.S. economy, the world’s largest, is now expected to grow just 1.4 percent this year, down from the 1.8 percent predicted in June, according to the report. The euro-area forecast was cut by 0.1 point to 1.5 percent and the outlook for Japan was lowered 0.1 point to 0.6 percent. The OECD also reduced its prediction for the U.K.’s 2017 economic output by 1 percentage point to 1 percent following the country’s vote to exit the European Union.

“Erosion of trade in some ways is death by a thousand cuts with protectionism encroaching here and there,” Mann said. “If we could get global trade back on track, we would be able to recover something.”

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