US and global economic growth will be boosted by US president-elect Donald Trump’s promised infrastructure spending and tax cuts, but the benefits will be undermined if he presses ahead with protectionism says the Organisation for Economic Cooperation and Development (OECD).
In its twice-yearly report on global economic prospects, the Paris-based research body said that it expects Trump to offer some fiscal stimulus once he takes office in January. Although the exact form is still not known, its likely scale will lift US economic growth to 2.3% from 1.9% in 2017, and to 3% from 2.2% in 2018. By contrast, the OECD expects the eurozone to grow by 1.6% next year, the UK by 1.2% and Japan by 1%.
The report suggests that Trump’s policies could lift much of the world out of sluggish economic growth. More active fiscal policy, it says, “should revive expectations for faster and more inclusive growth, thus allowing monetary policy to move toward a more neutral stance in the United States at least, and possibly other countries as well.
“The boost to US spending on infrastructure and other investments – such as improving skills and facilitating job-finding success through more active labour market policies and the provision of child care – will combat inequality and counter the steady decline in labour force participation rates, both by prime-age men and women.”
However, the report also urges Trump to reconsider his election pledges to increase trade barriers, which it says would eradicate the gains. “Trade protectionism shelters some jobs, but worsens prospects and lowers wellbeing for many others,” it warns.
According to the OECD, after averaging 3.9% growth over the decade to 2013, global growth will be 2.9% in 2016 but then improve to 3.3% in 2017 and 3.6% in 2018.
“Almost a decade after the outbreak of the financial crisis, the global economy remains in a low-growth trap with weak investment, trade, productivity and wage growth and rising inequality in some countries,” said Catherine Mann, the OECD’s chief economist.
Although the OECD now expects the UK to achieve 1.2% growth in 2017, against its previous forecast of 1% is September, it predicts that the rate will fall to 1% in 2018 as uncertainty over the terms of the country’s departure from the European Union (EU) weakens business investment. Its forecasts are lower than those of the UK’s Office for Budget Responsibility, which last week forecast growth of 1.4% in 2017, rising to 1.7% in 2018.
An upgrade for the US, Europe and Japan is offset by downgrades for Mexico and other major emerging economies.
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