$470 billion trade war looms over OECD's optimistic global outlook

$470 billion trade war looms over OECD's optimistic global outlook

U.S. economic growth is tipped for a rise from 2017's 2.3% to 2.9% this year and 2.8% in 2019, on the back of tax cuts and spending increases under President Donald Trump.

The world economy will expand at its fastest pace since 2011 this year, but the United Kingdom will continue to lag, according to the latest forecasts from the Organisation for Economic Co-Operation and Development (OECD). But it also warned that the risk of trade wars could derail expansion.

The OECD forecast the USA economy would grow 2.9 percent this year and 2.8 percent in 2019, with tax cuts adding 0.5-0.75 percentage points to the outlook in both years.

U.S. President Donald Trump last week formally signed proclamations to impose a 25-percent tariff on imported steel and a 10-percent tariff on aluminum, causing mounting dissent among business groups and trading partners around the world.

With tax cuts boosting the economy this and next year, the OECD forecast the upper bound of the target federal funds rate could reach 3.25 percent by the end of 2019 from 1.5 percent now.

And while eurozone growth is expected to ease off from 2.5% past year to 2.3% in 2018 and 2.1% in 2019, major continental economies like Germany and France are forecast to out-perform the UK.

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But 2019 is unchanged at 1.1%, compared to the OECD's most recent forecast in November, and both years are down on the 1.7% growth recorded for 2017.

With the euro area economy resilient, rising inflation would allow the European Central Bank to reduce its bond purchases gradually this year and subsequently phase out its negative interest rate policy, the OECD said. The Paris-based organization had expected growth to be 1.2 percent in 2018 and 1.0 percent in 2019.

The OECD blamed the UK's position on high inflation dampening consumer demand and continued uncertainty about Brexit.

In Germany, growth is seen coming it at 2.4 per cent this year and 2.2 per cent next, up from 2.3 per cent and 1.9 per cent previously.

"Trade protectionism remains a key risk that would negatively affect confidence, investment and jobs", it said on Tuesday.

"I think it is very important to avoid escalation and to initiate a strengthening in the global dialogue to solve not only the problem for steel but to avoid bigger repercussions in terms of trade".

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